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Members of two contractor groups cope with uncertainties

September 19, 2000
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Two national contractor associations recently held their conventions in two Disney World hotels separated in time by one day and in distance by a quarter of a mile. The Mechanical Contractors Association of America met at the Yacht Club, the Air Conditioning Contractors met at the Coronado.

The two associations have distinct differences. MCAA is a unionized group, negotiating contracts with the United Association of Journeymen & Apprentices, Plumbing and Pipefitting Industry. They do mostly big, nonresidential jobs.

ACCA contractors are about 80% open shop, doing a mix of residential and nonresidential jobs.

The attendees of both associations were linked by the usual preoccupations of all businesses — how to stay in business, how to increase market share, how to compete in the crazy new world of contracting.

Another common preoccupation focused on the new alliances that have grown up around the contracting businesses: utilities and contractors, contractors and wholesalers in buying groups, energy service contractors selling to the building owners’ market — the variables go on. We are still in the middle of a “cyclone of change,” as Alan Barnes, former ACCA president, put it.

Corridor conversations were thick with talk of the continuing roll-ups of contractors, a process now in its third year. Significantly, the incoming president of MCAA, William E. McClure Jr., had just sold his business to Pennsylvania Power & Light, following in the footsteps of an earlier MCAA president, Jim McCarl. That news unsettled some of the big mechanical contractors. Interestingly, one of the MCAA exhibitors was Hoganson Venture Group, a Chicago-based firm that offers to broker contractor alliances around the country. Hoganson had a lot of visitors to its booth.

Something new has seeped into the proceedings of these conventions.

At the ACCA House of Delegates meeting, several resolutions from the floor alluded to the consolidated contractors, asking in effect for the board of directors to do something about the roll-ups of independents. What, exactly, ACCA’s board can do is questionable.

Such consolidations are legal and have been endorsed by the estimated 500 contractors who have sold their businesses and (mostly) remained with one of the four corporations. Many of those rolled-up contractors were — and remain — prominent members of ACCA.

Until now, speakers at these conventions would give their presentations as if they were living in the traditional world of two-step distribution to a national market of smaller, scattered contractors. No more.

Speaker after speaker alluded to the big bad behemoths that have entered the $1 billion-plus category. The remarks went something like this:

“It’s not enough to sharpen your warranty programs, to hone your advertising message, to improve your training. You must be smart enough to compete with the consolidators or else they will eat your lunch.”

Are you doing a bad job on accounts receivable? Warranty administration? Truck management? You’d better get on the ball or the consolidators will “eat your lunch.”

These are appropriate warnings, as the Big Four go from strength to strength, pinning down alliances with utilities, energy service companies, big building managers, and real estate investment trusts. They are sweeping up some of the finest technicians in the country, promoting their services to a sophisticated market, and enhancing their in-house training of techs, system designers, and executive staff.

No sooner were the two conventions concluded and their attendees back on the job but a significant development occurred. American Residential Services, fighting an 18-month-long earnings slump and an even steeper stock price decline, announced it would sell to ServiceMaster. The buyer is a $4.7 billion corporation with branded services in half a dozen fields like American Home Shield and TruGreen-Chemlawn.

Adding the revenues of ARS would give ServiceMaster another $600 million in sales. It would also give ServiceMaster some key executives like Elliot Sokolow and Frank Menditch, who have pledged to stay on with the company.

Another interesting bit of news came from an investment firm’s speculation in Business Week magazine, that Comfort Systems USA, with $1.2 billion in sales, would make an attractive addition to some large utility. It’s just a speculation, but it adds fuel to the growing notion that the four consolidators’ formation was just the first step in their ultimate folding — into a really big company — an equipment manufacturer, say, or a large national retailer.

Whatever the ultimate fate of the Big Four, it will provide no relief to the independent contractors. If the big guys are sold, their potency will increase, not decrease. They will be capitalized even more heavily, and their growth will continue more sharply.

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