Large Electrical Contractors Struggle with Debt and Sluggish Markets

Contractor consolidators were once the talk of the electrical contracting industry. But the electrical contracting consolidation corporations that rose up in the late 1990s have fallen on hard times. The consolidators, formed from hundreds of local and regional electrical, telecom and mechanical businesses, are struggling with debt, bad credit ratings and sluggish markets, according to a recent article in ENR magazine.

Quanta Services, Integrated Electrical Services, and Encompass, all based in Houston, are all saddled with bad debt and things could get even worse, according to a report from Standard and Poor's. Quanta is in a power struggle with its biggest investor; Encompass is trying to get through 2002 without violating its lending agreements, like it did it 2001; Integrated Electrical Systems had its credit lowered in January and Standard and Poor's lowered the rating on Encompass on Feb. 15, 2002. According to CEE News magazine's “Top 50 Electrical Contractors” article (June 2001), Encompass ranks first, Integrated Electrical Services ranks second, Emcor ranks third and Quanta Services ranks seventh.

In addition to financial woes, the consolidators also face stagnant telecom and new construction markets and shaky telecom and cabling projects. One scenario has capital spending on telecommunications dropping more than 30 percent over the next year, according to the ENR piece.

One contractor consolidator has continued to profit through these tough market conditions. Norwalk, Conn.-based Emcor Group has been substantially more profitable in the category of return on permanent capital (ROPC).

Emcor's ROPC is 20 percent for the last few years. The other consolidators are in the 10 percent to 12 percent range.