Underground Construction - October 2020 - 14

Utility & Communications Construction Update
FIGURE 3: UCCI Stock Performance
Enterprise Value (EV)

LTM Revenue

LTM EBITDA

EV/ 2018 EBITDA

EV/ 2019 EBITDA

EV/ LTM EBITDA

Quanta Services, Inc.

Company

8,318.7

11,736.0

866.5

6.4x

9.2x

9.6x

MDU Resources Group, Inc.

7,179.2

5,502.3

789.1

10.5x

11.4x

9.1x

MasTec, Inc.

4,469.6

6,711.7

692.3

7.1x

7.8x

6.5x

Dycom Industries, Inc.

2,486.4

3,260.0

308.3

8.2x

8.1x

8.1x

Primoris Services Corporation

1,312.4

3,306.3

233.7

5.8x

7.3x

5.6x

Aecon Group Inc.

1,111.0

3,469.7

108.9

6.5x

8.6x

10.2x

Granite Construction Incorporated

875.7

3,389.8

10.0

7.8x

NM

NM

Aegion Corporation

695.5

1,150.7

95.4

7.7x

10.6x

7.3x

MYR Group Inc.

686.0

2,185.8

117.9

6.5x

7.5x

5.8x

Infrastructure and Energy Alternatives, Inc.

499.6

1,780.8

131.4

NM

5.5x

3.8x

Matrix Service Company

149.5

1,100.9

36.1

19.3x

8.0x

4.1x

The Goldfield Corporation

145.4

176.9

23.5

4.4x

4.8x

6.2x

Figure 4: Recent Deal Activity
Announced

Target

Acquirer

Business Description

08/2020

Otis Eastern Service, LLC

Artera Services

O&G pipeline construction

08/2020

Coastal Electrical Construction

BHI Energy

Electrical T&D

07/2020

Echo Powerline

Sparks Energy

Electrical T&D

07/2020

Southeast Utilities of GA

Congruex

Telecommunications

04/2020

Pearce Service

New Mountain Capital

Telecommunications

while there could be significant changes
under a Biden administration. An increase
in the capital gains rate would directly
impact the value of an owner's company.
Similarly, higher corporate tax rates could
also affect shareholders. These changes
would require a "blue wave," but recent
polling suggests this is a possibility.
Third, we look to regulatory burden.
This concept is difficult to quantify,
but outside of the legal battles from
environmental groups surrounding major
oil pipelines, the Trump administration
has attempted to limit governmental
red tape and encourage companies to do
their job. In general, Democrats prefer
more governmental oversight, and limits
on the energy and construction efforts
being completed today.
Some of this oversight is necessary
for public health and safety; other
requirements can simply increase
cost with limited public impact.
Regardless who wins the election,
critical infrastructure legislation will
likely be brought to Congress. Federal
infrastructure legislation combined with
14

OCTOBER 2020 | UCONonline.com

low interest rates could continue the
golden age of the underground contractor,
despite the coronavirus.
The Utility & Communications
Construction Index (UCCI) presented on
Page 12 shows the stock performance of
the sector's publicly traded stocks yearto-date (FIGURE 1) and the past three
months (FIGURE 2). The year-to-date
performance indicates how much more
significantly the construction industry
was impacted by the two-pronged attack
of falling oil prices and coronavirus.
March 18, 2020, was the low point - a
54-percent decline from the beginning of
the year. Because of the federal reserve
and congressional action, FIGURE 2
illustrates the strength of utility services
and the hope for energy, as tech stocks
(that drive the S&P 500) have fallen. Stock
prices for the UCCI rose an additional
19 percent in Q3, over Q2's 23-percent
increase. The action of Congress and the
decline of coronavirus are the two primary
factors in whether we continue to return
to valuations at the beginning of the year,
or if the "V" becomes a "W."

Lastly, as the stock market has roared
back, the valuations of most companies
in the UCCI are down, but not by as much
as one would expect given the upheaval
in the energy industry. There are also a
couple of positive outliers looking towards
future results, such as Quanta and Aecon.
Third-quarter activity increased, with
the first deals having to survive Covid-19
diligence processes being completed. This
is encouraging for the industry and for
owners seeking to exit their companies
in the coming months. We have also
begun to see additional companies on
the market and expect more transactions
to make it through diligence and close
before year-end.
The expected spend required to upgrade
electrical distribution grids to a more
automated system (that can incorporate
renewable energy and serve electric vehicle
grid demand) is a common theme among
investors looking to add expertise in
electrical transmission and distribution.
We also see continued consolidation of the
fragmented telecommunications market,
as 5G plans are executed and additional
capital is spent in rural areas to create
a more balanced solution for families
with limited broadband access. Artera
Services (formerly PowerTeam Services)
also continues to grow in its core market,
through the acquisition of Otis Eastern.
After acquiring Miller Pipeline and
Minnesota Limited, the Artera Services
group is one of the most rapidly growing
underground companies in the U.S. *
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Underground Construction - October 2020

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