Located near Manchester, N.H., Granite had 2004 revenues of approximately $25 million and earnings before interest, taxes, depreciation, and amortization of approximately $1 million. Comfort's purchase price was $2.8 million in cash, which approximated the book value of Granite's tangible net assets as of Dec. 31, 2004.

William F. Murdy, Comfort Systems' chairman and chief executive officer, said, "We are very pleased to bring Granite State into the Comfort Systems USA family of companies.

"Under the leadership of Gerry Perron and Ken Duchesne, Granite has built an excellent reputation for outstanding design-build mechanical services in the New Hampshire and Vermont markets, and is poised to significantly expand its relatively new service operations.

"More broadly, we continue to see good activity levels in most of our markets, and believe that we are well positioned for continued growth in 2005. Given the size and fragmentation of our industry and the strength of our balance sheet, it makes sense for us to consider acquisition possibilities. However, we plan to do so on a very selective, opportunistic basis, and expect our growth in 2005 will largely be generated internally."

State Of The Company

Murdy stated that Comfort Systems USA is in good shape and has positioned itself to grow through several key areas. "We have continued to focus hard on productivity, i.e., job execution," he said.

"This business responds to management and is not something you put on autopilot. Clearly we have cut some of our fixed costs, down about 10 percent from 2003. We have seen activity come back in many of our markets - a level that is a lot more robust than a year ago.

"We continue to focus hard on training, like project management training, sales, service operations."

Murdy thinks the economy is perking up, and

this has contributed to growth in the once-dormant commercial sector.

"The multi-family residential sector has also been doing very well, both the garden and high-rise apartment markets," he noted.

"Last year was statistically better than 2003. The economy is coming back and people are spending money on maintenance and service of existing HVAC systems."

Murdy said that his company is in a good cash position, which bodes well for future construction projects.

"We've always had good continuing bank relationships," he said. "Our lenders have stuck with us. Our cash flow is such that we have cash on the balance sheet, probably one of the few former consolidators that can say that. We have never been refused a bond, and today we have over $300 million in face value of surety bonds outstanding.

"Our stock has gone from less than $2 a share in 2003 to more than $6 a share. It's not like it used to be, and we need to show continued positive results for our investors."

Shaking The Stigma

"I begrudgingly admit to the stigma of a consolidation label," Murdy said.

"Shareholders have seen the consolidations in the specialty construction sector not do well. In a tough economy, a lot of the operations proved to be weaker than we thought. The tide went out with the falling economy, and we found out who was swimming naked.

"I don't think we will see a consolidation wave like we saw in the late 90s - in any industry. That was an interesting point in our history. Everything was positive, with rapid growth. Capital was virtually free. People learned a lot of lessons from that.

"I do think we will see HVAC mechanicals continue to expand, but they will do it through organic growth and careful acquisition that will be very targeted. The acquirer will want to make sure the company being acquired wants to be a part of a larger corporate entity.

"When we look at a company now, we ask, "Does this organization really want to be part of Comfort Systems USA?"

Publication date: 01/31/2005