Underground Infrastructure - January 2023 - 16

Utility & Communications
sector's publicly traded stocks over the
past year (FIGURE 2), the past three
years (FIGURE 3), and the past 10 years
(FIGURE 4).
Th e UCC Index has seen consolidation
in the market with the acquisition
by Mastec of Infrastructure Energy and
Alternatives (IEA). Th ere were also large
TABLE 3: Recent Deal Activity
Announced
11/2022
Target
CST Utilities
transactions in the sector, including the
acquisition by Primoris of PLH Group.
Year-to-date
performance
of
nue and profi tability in the coming year.
Th e three-year UCC Index captures
the
UCCI is basically fl at while the S&P 500
has declined over 16 percent year-overyear.
Expectations for the segment are
quite high, as investment is expected to
begin to have an impact on both reveAcquirer
MFG
Partners
Business Description
Diversifi ed Utility Services
just how quickly the market corrected
from the COVID crisis and how well the
UCC Index companies have done over
that period. Companies in the UCCI
were performing consistently, but they
were not outperforming the S&P 500
leading into the pandemic.
FIGURE 2: YTD UCC Index. Source: FMI Research, S&P Capital IQ; as of December 12, 2022
Initial stock declines in the UCCI
were steep because the market had the
perception that profi t in most of these
companies was tied to the price of oil.
With the optimism around investments
in the space and real earnings growth
tied to those investments, the UCC
companies have done incredibly well.
Th e 10-year UCC Index in FIGURE 4
is meaningful because you can see the
impact that depressed oil prices and lack
of investment in utility infrastructure
can have on the sector. Th e declines
that occurred while the broader market
was rising from 2017-2020 caused the
UCC Index companies to lag the broader
economy. However, FIGURE 4 illustrates
even more impactfully the increase
in stock price for the UCCI companies
and the expectation of growth and profitability
that now rests on this group.
FIGURE 3: 3-Year UCC Index. Source: FMI Research, S&P Capital IQ; as of December 12, 2022
Mergers & acquisitions
Th e fi nal quarter of activity was starkly
diff erent than 2021 in the M&A
markets. In comparison to the record
number of deals last year, the impact
of the Federal Reserve on interest rates
that provide funding to buyers resulted
in impactful changes to the market for
companies. Th e gap between seller valuation
expectations and buyer's willingness
to pay has cooled a previously busy
area for M&A.
Th e opportunity in utility infrastructure
construction based upon expressed
interest by both strategic and private
equity acquirors remains high, but
common ground on valuation has been
more diffi cult to come by. UI
1
https://www.bls.gov/cpi/
2 FMI Q4 Outlook 2022
DANIEL SHUMATE,
Managing Director,
FMI Capital Advisors Inc.
FIGURE 4: 10-Year UCC Index. Source: FMI Research, S&P Capital IQ; as of December 12, 2022
16 JANUARY 2023 | UndergroundInfrastructure.com

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Underground Infrastructure - January 2023

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