When Tutor Perini Corp. announced this month it had acquired one of New York’s largest electrical and mechanical contractors for $208 million, the news barely registered.
After all, GreenStar Services Corp. only does a fraction of the business of the Sylmar construction firm, which brought in $3.2 billion in revenue last year.
But the acquisition was actually the latest in a half-dozen the company has quietly racked up in less than 12 months – which taken together have dramatically expanded the reach and capabilities of the large general contractor.
“That’s a lot for any company,” said Kalpesh Patel, an analyst for Jefferies and Co. in New York. “Instead of waiting around for the market to turn and new business to come into their portfolio, they made the strategic decision to pursue this acquisition strategy to drive growth.”
Tutor Perini spent about $650 million on the six deals, gobbling up contractors that cumulatively earned more than $1.7 billion in annual revenue– more than half of its own revenue base.
The buying spree started in October with the purchase of Superior Gunite, a Lakeview Terrace engineering firm that specializes in concrete construction. Tutor Perini followed that with acquisitions of companies specializing in areas such as tunnel building and bridge construction.
Indeed, executives said the deals were part of a concerted effort to broaden its capabilities and geographic footprint, not just the revenue base.
Chairman-Chief Executive Ronald Tutor was not made available for comment. But Chief Financial Officer Kenneth Burk said the acquisitions are part of the company’s plan to be a “national contractor capable of serving clients all over the country and also a company with vertical self-performance capabilities.”
Analysts are cautiously optimistic, though they’ll be keeping an eye on the company’s ability to integrate the operations. There also are questions about the debt the company has taken on to fund some of the acquisitions. Tutor Perini issued $300 million in senior notes in October to fund several of the deals.
Avram Fisher, an analyst with BMO Capital Markets in New York, who has a “hold” rating on the stock, wrote in a July 4 investor note that the GreenStar acquisition “seems like it would be a good cultural fit,” but he noted the company’s use of debt to fund recent acquisitions is “an anomaly in the risk-averse construction world.”
Wider reach
Geographically, the acquisitions will give the company stronger footholds in the South, Midwest and Northeast. In particular, GreenStar has a major presence in New York, where it is working on the renovation of Madison Square Garden and on the high-rise project known as the Freedom Tower at the site of the former World Trade Center.
Tutor Perini subsidiaries have worked on projects in New York, and Burk said new acquisitions will bolster the company’s presence there.
“We’re present in New York, but we haven’t been working in all of the markets inside of New York,” he said. “We’re expanding within the New York market by being able to go after many types of projects.”
But it’s not just the Big Apple that the company has its eye on. Burk said the acquisitions should help open doors in a number of markets by expanding the services it can offer.
“You’re bringing certain expertise in-house so you can leverage the larger Tutor Perini platform to pursue other opportunities wherever they may be,” Patel said. “It’s about geographic exposure and expanding their capabilities.”
Each of the past five acquisitions is based outside Tutor Perini’s primary market of the Western United States.
The purchases include Black River Falls, Wis.-based bridge builder Lunda Construction Co.; Frontier-Kemper Constructors, a tunnel construction company in Evansville, Ind.; Gulfport, Miss.-based contractor Anderson Cos.; and Houston’s Fisk Electrical Co.
Burk said the acquisitions will give Tutor Perini “a balanced portfolio of businesses that can seize an opportunity when one market is hotter than another.”
Executives hope the acquisitions also can reinvigorate the company’s weak stock, which has been stung by the recession and construction slowdown and, more recently, by a disappointing earnings report in early May.
Sluggish stock
Formed by the 2008 merger of Sylmar’s Tutor-Saliba Corp. and Boston’s Perini Corp., the company has seen its shares slide 30 percent from their 52-week high of $26.87 in late April. Shares closed at $19.02 on July 7.
The company reported first quarter earnings of 14 cents per share, well below the 40 cents per share analysts had expected, and down 28 cents per share from the first quarter of 2010.
However, the company stuck to its full-year guidance of $2.20 to $2.40 adjusted earnings per share, maintaining that the earnings miss was only caused by a lag in revenue from projects that would start later in the year.
“We hope the investment community appreciates the work we’ve done in terms of acquiring businesses that fit our strategy,” Burk said. “At some point, the market will realize our value and we’ll be rewarded for that.”
Out of four analysts who cover the stock, two rate it a “buy” and two rate it a “hold,” according to Bloomberg News.
Patel, who has a “buy” rating, said he expects to see some impact from the earlier acquisitions by the third quarter, but said Tutor Perini has a challenge on its hands.
“Everybody is curious and monitoring Tutor Perini and how they go about executing these acquisitions and integrating them and how that impacts their top and bottom line,” said Patel.
But, he added, even if the integration goes well, that’s only half of the story.
“The other half is the broader economy and GDP growth and private investment trends,” he said. “That’s the hundred-million-dollar question for all construction companies and anyone else.”
