Consolidation trend drives construction contractors to merge, attorney gives advice

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As more and more Wisconsin contractors combine or buy like-minded companies, industry experts said contractors must be cognizant of company culture, track ongoing projects and work tight deadlines to make the best deal.

The trend reflects widespread consolidation across every industry right now, said Joe Tierney, a construction mergers and acquisition lawyer at Amundsen Davis. With consolidation comes better purchasing power, better ability to attract clients, greater name recognition and larger market presence, he added.

But working out the finer details can be challenging. Workers can feel uncertainty during change and timing for the construction season is important in Wisconsin where warm weather only lasts around three months. Both parties need to look at all the tiny moving parts, including ongoing contracts and liabilities.

One way to handle ongoing contracts is to create an inventory of contracts and review them, Tierney said.

“Make sure you understand how much is left on the contract, look at its percentage of completion if that’s the way you’re evaluating or whether the contract is close to completion on an individual performance basis. Look at how much inventory has gone into the contract and how much money has been spent so far on the deal. Then you want to evaluate what’s going to take to complete that,” Tierney added, noting some companies analyze how profit fades or grows during different stages of the deal.

Companies looking to merge or acquire another company should get a handle on what projects are out there and who the key subcontractors are, he said. Understanding the backlog of a construction company is also key, he added.

Three factors to frame success are understanding the culture of the two companies, assessing the proper value of details and retaining and acquiring talent, Tierney said.

“You can buy a pile of assets, but if you don’t have the right relationships to finish projects, you’re going to end up losing money,” he added.

One recent acquisition involved Baraboo-based MSA Professional Services acquiring Mequon-based Fredericksen Engineering. The two companies both had mutual clients, similar services and one could provide back-of-house services the other lacked, Gil Hantzch, CEO of MSA, said. He added that it was a “long, gestational process” that took two years and grew the mechanical side of his business.

“For MSA, we were looking to build a more competitive mechanical, electrical and plumbing (MEP) group. … We weren’t always able to compete for an MEP project where the client wanted all three services under one contract. By bringing the size and capabilities of a mechanical group roughly equal to our electrical group, meanwhile we’ve organically grown our plumbing group, this puts us in a position to compete for larger, better MEP contracts because we can offer all three services on a larger project,” Hantzsch added.

Acquiring Fredericksen and Muermann Engineering before that helps MSA’s overall growth goals, Hantzsch said. The engineering firm provided support staff such as human resources and accounting to Fredericksen and allowed them to grow more rapidly. Fredericksen’s employees can also move across MSA’s 17 offices and take on jobs in new areas, he added.

When a smaller firm is bought by a larger firm, some employees may face some anxiety and uncertainty about what will happen next. Hantzsch said it was important for his team to get in early and meet with workers to try and quell their fears.

“Anytime something happens where people didn’t choose, we have to go in and understand that different people have had different experiences and will process it differently. … It’s important for us to get in there as early as we can and get them to meet us and see that we’re reasonable people and start to try and lay their fears,” Hantzsch added.

Another acquisition happened when Glendale-based Munson Inc. bought Butler-based Frank Armstrong Paving earlier this year. Both contractors cater specifically to the tennis and pickleball court market, but a drive for more talent drove the acquisition, Rob Fetherston, general manager and vice president of Munson, said.

“What worked for us was they had similar equipment that we needed and we’re merging equipment and getting rid of excess or older (equipment). They kept their stuff in great shape like we did. … It was like buying a sister company that had everything you needed,” Fetherston added, noting it was difficult to find skilled workers that Frank Armstrong had and finding workers remains a challenge post-acquisition.

Planning started in December 2022 and wrapped up May 1 when the construction season was already happening, Fetherston said. Despite the challenge, it was a goal he had in mind for almost 20 years, he added.