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For most specialty contractors, the market has been torrid. But now, with the housing market meltdown and the uncertainties of next year’s presidential election, some specialty contractors worry that they are seeing the first signs of a softening market.

The scale of the market boom can be measured by the revenue figures from the ENR Top 600 Specialty Contractors. The Top 600 as a group generated $65.47 billion in revenue in 2006, up 14.0% from $57.44 billion reported in 2005. This is more impressive considering that the No. 3 and 4 ranked firms from last year, Johnson Controls, Milwaukee, and Integrated Electrical Services, Houston, did not respond to this year’s survey. Discounting their combined $2.94 billion reported last year, the Top 600’s revenue from last year was up 20.1% from 2005.

The Top 600:
  • Rankings
  • Complete Report with revenue and market data
  • While markets continue to be strong, a few contractors are beginning to see signs of trouble. Some industry experts believe that the fallout from the residential bust may have an impact on the nonresidential market. “There is a bit of a slowdown caused by the credit crunch from the subprime mortgage problems,” says Mike Taylor, executive director of the National Demolition Association, Doylestown, Pa. “It’s not much of a slowdown, and I think it will pick up again.”

    There also are regional soft spots. In Minnesota, “traditionally, we would be up to maximum utilization of our equipment by June. This year, that didn’t happen until September,” says Greg Boelke, senior vice president of Veit. The firm is working on the new Minnesota Twins stadium and the University of Minnesota’s Gopher Stadium. “But there is plenty of rental equipment available at the dealers here,” he says.

    The market in Michigan remains tough. “We are stuck in a down economy because of the slowdown in auto work,” says Dick Cramer, chairman of Dee Cramer and this year’s chairman of the Sheet Metal and Air Conditioning Contractors’ National Association, Chantilly, Va. The three day United Auto Workers strike against General Motors and a state tax hike hasn’t helped, he says.

    Top 600 Overview
    Guy Lawrence / ENR

    Not everyone sees problems in the near term. “The market looks good right now, with a lot of activity in the pipeline,” says Tony Guzzi, president of EMCOR Group. “There still is good liquidity in the markets,” despite the financial upheaval from the residential subprime sector, he says. “As we enter 2008, the foundation is in place in the economy for a continuing strong market,” especially after the recent cut in interest rates, says Charlie Bacon, CEO of Limbach Facilities Service. Still, he says, “Our guard is up, just in case.”

    While the housing bust hasn’t had a direct effect on the nonresidential market, some contractors worry that there may be indirect effects, such as new bidders fleeing the residential market. “There has been a little more competition from residential roofers on the lower end of our market, but it’s not having much of an impact,” says Mark Santacrose, CEO of roofing giant Tecta America Corp. “There are only a few new bidders so far, unlike the last time the market took a hit in the early 1990s,” says Brien Pariseau, president of Sunwest Electric.

    On the other hand, suppliers to the residential market may now be scrambling into the commercial market. “We have some suppliers who didn’t want anything to do with us suddenly coming to us, saying they have had a change in business philosophy,” says Andrew McPherson, president of Seretta Construction. “I had a guy who does precast lintel come to me to tell me he’s now a rebar fabricator.”

    The 2007 Top 600 at a Glance
    2006 ($ MIL.)
    2005 ($ MIL.)
    % CHANGE
    Revenue 65,474.1 57,441.8 +14.0
    New Contracts 65.91 54,352.1 +17.7

      Firms Reporting
    Net Operating
    Average % margins of
    Profit Loss Profit Loss
    Firms Reporting 569 12 7.2 4.1

    Market Analysis
    Type of Work Revenue
    ($ MIL.)
    % of Total
    Building 36,501.7 55.7
    Hazardous Waste 650.6 1.0
    Industrial 3,972.4 6.1
    Manufacturing 4,155.7 6.3
    Other 1,415.0 2.2
    Petroleum 3,739.4 5.7
    Power 5,864.9 9.0
    Sewer/Waste 1,799.2 2.7
    Telecommunications 2,488.4 3.8
    Transportation 4,187.7 6.4
    Water 699.1 1.1

    Type of Work Revenue ($ mil.) % of Total
    Asbestos Abatement 842 1.3
    Concrete 5,538.80 8.5
    Demolition/Wrecking 1,295.50 2.0
    Electrical 15,810.60 24.1
    Excavation/Foundation 2,875.00 4.4
    Glazing/Curtain Wall 1,156.10 1.8
    Masonry 892.4 1.4
    Mechanical 13,626.90 20.8
    Painting 845.8 1.3
    Roofing 1,818.60 2.8
    Sheet Metal 1,008.70 1.5
    Steel Erection 1,366.20 2.1
    Utility 3,978.00 6.1
    Wall 3,362.20 5.1
    Other 11,057.10 16.9

    Darlings of Wall Street

    One trend that is resurfacing is Wall Street’s interest in specialty contractors. And in a high-volume but low-margin industry like construction, the influx of cash to fuel aggressive growth is being welcomed with open arms. One of the most dramatic moves was in June 2006, when New York City based private equity investor Lindsay Goldberg LLC acquired a majority interest in The Brock Group, one of the nation’s largest industrial maintenance contractors.

    This influx of capital helped Brock to acquire scaffolding and insulation contractor Xserv Inc., which was No. 23 on ENR’s 2006 Top 600. Then, in June, it acquired A&L Industrial Construction & Maintenance, Inc., Kingsport, Tenn., a 1,200-employee multidiscipline industrial contractor. Finally, on Sept. 26, Brock completed a buy-out of Steeplejack Industrial Group Inc., an Edmonton, Al­ber­ta-based scaffolding and industrial services contractor.

    Roofing giant Tecta America is another firm that has attracted outside investment. In December 2006, KRG Capital Partners, a Denver based private equity firm, made a major investment in the firm. “They are really good to work with, challenging us to continue to grow,” says Santacrose. Tecta continues to expand, acquiring Albany, N.Y.-based WeatherGuard Roofing Co. last October, and Delta Roofing, with offices in Massachusetts and Florida, in June.

    MYR Group also saw a change in ownership by equity investors. It was acquired by ArcLight Capital Partners from FirstEnergy Corp. and in spring of 2007...