International players seeking entry to the New York market are also driving deals, adds FMI’s Hill, citing the efforts by Spain’s Dragados, a global civil contracting firm, to buy companies such as New Jersey’s Schiavone Construction in recent years to build up a nearly $1 billion U.S. presence.
In most cases, acquirers that survive today’s storm will emerge stronger because of their deals, says David Pfeffer, a partner handling construction matters for Tarter Krinsky & Drogin, a New York law firm. “They should have the resources to get the big projects, and competitors may not be as ready to compete,” he adds.
But even though deals appear more prevalent and strategic in today’s market, Structure Tone’s most recent acquisition still fits neatly into the pattern that has propelled it to being one of New York’s market leaders. The firm started as a two-person shop focused on the interiors market in 1971, expanded to other Northeast markets and to London a decade later. It made its first big purchase in 1987, adding Texas-based Constructors & Associates, an outfit just renamed this year as Structure Tone Southwest.
Other acquisitions followed, including Pavarini Construction in 1996, Hong Kong-based S&techs in 2000, and then Pavarini McGovern eight years ago.
“Each acquisition was driven by own reasons,” Mullen says, citing the Constructors and Associates deal as a bid to expand into a new geographic market, and Pavarini as a move into core-and-shell construction.
But it also was opening new locations in Houston, Philadelphia, San Antonio, Hartford, Conn, and Princeton, N.J., as well as overseas in Dublin and Shanghai. And all along it was expanding its specialty mix, adding not only core-and-shell to its interiors and renovation roots but also launching mission critical, science and technology, and higher education practices.
Most construction firms that grow rapidly in the U.S. market take either the acquisition or organic growth approach, FMI’s Hill says, citing the success of firms like Skanska and Dragados at buying companies in recent years to create a large presence, and the steady expansion of others such as Tishman and California’s DPR Construction at opening offices in new regions.
“It’s unusual to see many firms that do a very good job at both,” he says.
Driscoll’s history took a different track, starting in 1929 and steadily growing its presence as a contractor in the Philadelphia region but in recent years benefitting from several specialty markets, including healthcare, where it is now the 10th-largest construction manager at risk nationally, according to ENR. It also built two of Philadelphia’s prime pro sporting venues – the new baseball stadium for the Phillies in 2004 and the arena home of hockey’s Flyers and basketball’s 76ers in 1996.
While they traveled on different tracks, their fortunes lined up last year.
Building Blocks When Driscoll came on its radar, Mullen says Structure Tone had already been trying to build a healthcare market presence and expand in Philadelphia. “We now have a much bigger presence in Pennsylvania and the whole Mid-Atlantic region,” Mullen adds. “But we also won a strong and loyal client base and employee base because we have a great leadership team at Driscoll that stayed on board.”
Meanwhile, Donnelly says it’s no accident that Driscoll trailed in interiors and options for expanding into the rest of the Northeast market.
Beyond strategic opportunities, the firms matched up in other critical ways. Driscoll, for instance, was seeking a succession strategy for Donnelly but also ways to expand career opportunities for their personnel.
“It’s the ‘problem’ with being successful,” Donnelly says. “We had a choice of whether to try a succession plan within the organization – an internal buyout – or find a partner.”
Driscoll’s team had several parameters in mind, Donnelly says. One was looking for privately held companies like itself – an organizational structure that often shapes culture and strategic vision, he adds. “We saw our views on long-term and short-term financial goals were aligned,” he says.
Since coming together last year, not much has changed from a personnel standpoint, with Mullen and Donnelly saying the mergers sparked no layoffs. The biggest changes have come in operations, with a continuing effort to integrate technology and accounting systems.
Mullen says one of the more tangible changes is frequent coordination in the Philadelphia market between existing Structure Tone staff and Driscoll on business development.