Despite a recession that has deeply affected the bottom line of many of the country’s strongest construction firms, specialty contracting giant EMCOR Group, Norwalk, Conn., still managed a monster year in 2009, reporting $5.5 billion in worldwide revenue. As EMCOR finds its way forward in a still-uncertain market, however, they will be doing it without current CEO Frank MacInnis, who announced earlier this year he will retire at the beginning of 2011 after a successful 16-year run that saw the company expand across the U.S. and grow by nearly $4 billion.
Replacing MacInnis will be Tony Guzzi, the firm’s president and chief operating officer, who currently oversees EMCOR’s day-to-day operations. Guzzi recently talked to ENR editors from around the country and answered questions about EMCOR’s continued success, its acquisition strategy and its plans for additional growth.
ENR: How has EMCOR been dealing with the current market? What are you seeing out there in terms of both your company and the industry itself?
Tony Guzzi: EMCOR came through 2009 in really good shape, by any metric—record margins on the operating side with our mix of businesses. We really reduced our break-even point quite significantly, and we benefited from a lot of the productivity investments we made and the restructuring of operations we did in the upturn. We exited some sectors, domestically and internationally, that we don’t want to be in any more, and we invested in other ones. We’ve made some key hires. As other people shed work and great people, we have upgraded talent in some cases.
What’s happened is, in the battleground—the $2 million to $10 million markets—people began irrational bidding and started to work for cash flow. Twelve to 15 GCs or CMs and anywhere from 12 to 20 specialty subs showing up on a job, and people breaking one of the cardinal rules for a specialty sub of traveling into an area you don’t know anything about. That can’t bode well for them long-term. There may be an expertise they don’t have or a geographic area they don’t know how to operate in.
Do you see certain regions coming back more quickly than others?
TG: The states that have the biggest budget messes are probably going to hinder the growth of their economies out of this downturn. You know who they are: Pennsylvania, Illinois, New Jersey, New York and California lead the parade.
There was a report recently that EMCOR was sitting on $625 million in cash. Are you looking to use this cash for additional acquisitions?
TG: We always look and never comment on specific acquisitions. Think about where we would look and how we look.We always look to add to our construction capability, but we also look geographically. There are still a few holes in the country where EMCOR is not represented in a significant market. We like to buy the No. 1 or No. 2 firm in any given market. If we buy the No. 2, we like to make them a strong contender to the No. 1. We don’t like to buy fixer uppers, and we almost never buy something in a market we are already in. We tend to be fair-value buyers. We’re not the guys who pay the most. We tend to have long-term relationships with people. And for a lot of people, we are the preferred place they want their company to end up.
Earlier you talked about the gaps that EMCOR has in certain parts of the country. Where on a regional basis are you underrepresented?
TG: On the mechanical services side—small project and technician-based services—we are underrepresented in the Pacific Northwest and the Rocky Mountain region. We have no representation in Dallas. We’re underrepresented in some parts of the lower Midwest.
If you flip into the construction side, it’s no secret EMCOR would love to be in the electrical business in New England. There are parts of the Midwest where we still need an electrical presence or mechanical presence, particularly in the lower Midwest—cities like St. Louis and others. We could use presence in the Pacific Northwest on the mechanical side, too.
Are there ways of stepping in to assist the companies once you acquire them?
TG: We want them to be great local operators. We do a lot of resource sharing and lessons learned from the more difficult technical jobs we do. We also help temper some of our local operators’ enthusiasm to take a project a little out of their expertise. We make sure the bidding stays disciplined. We don’t need our guys to work for cash flow. We don’t have to take work for practice right now. We can keep guys from doing that, and as the market upturns, they will be thankful we did.
