Pat Manning

Based in Houston, Sterling is a Texas road, paving and pipe contractor founded 50 years ago by James and Richard Manning. In order to facilitate an exit plan for his older brother, James, Chairman Patrick Manning says the company decided to merge with a publicly traded firm. That allowed Sterling to gain liquidity and raise capital. "As opposed to paying off my brother, who’s 77, we gave him stock," says Patrick Manning, 58. On April, 16, 2003, Manning rang the bell at the American Stock Exchange, where the company’s shares are now traded (STV).

The succession plan is very unusual for a contractor. Manning says the firm came up with the idea and that the biggest headache in operating as a publicly traded entity is complying with complex securities law disclosure rules. The cost is at least $1 million a year, about 10% of the company’s $11-million to $14-million yearly pretax earnings on revenue of about $150 million.

"For most companies in the E&C industry, being public does not make sense," says Scott Kolbrenner, vice president at Houlihan, Lokey Howard & Zukin, the Los Angeles-based financial consultant. "Unless you can be a $500-million or $1-billion-plus value company, you won’t attract significant investor interest and that will constrain your volume and ability to do things."

Some funds have invested in Sterling, and profits and backlog are sound, according to company reports.

terling Construction Co. recently completed another chapter in a complex succession plan that involved the merger started over four years ago with a publicly traded auto parts distribution company based in Pittsburgh. Sterling is buying out the remaining 19.9% of the shares of Sterling Houston Holdings.