Quanta Services,
Inc. was formed in 1997 with the merger of four companies. John Colson,
the president and chief executive officer of the lead company in that
merger, Par Electric Contractors, became president and CEO of the new
Houston-based company that provides specialized contracting services to
electric utilities, telecommunication and cable operators and governmental
entities. The other originating companies, still operating as Quanta companies,
are Trans Tech Electric, Union Power Construction and Potelco, Inc.
Three major industry trends
drove the merger: deregulation of the electric utility and telecommunications
industries; the aging of the existing transmission and distribution infrastructure
in the U.S., and the explosive growth of the internet and increased telecommunications
traffic. Deregulation and internet-related businesses have hit snags affecting
Quanta’s most recent revenues but capital expenditures for transmission
and distribution infrastructure by utilities will act as the driver for
Quanta’s business well into the future.
Today, Quanta Services is the
largest transmission and distribution contractor in the U.S., with 32
operating units located throughout the country. Since 1998, it has bought
up an additional 80 companies, many already subcontractors to larger acquisitions.
This has helped in the consolidation of the new company, Colson said,
which operates on a decentralized basis.
Quanta Services was formed
at the time its customers - utilities - were downsizing, reducing budgets
and outsourcing most of their work in preparation for deregulation. “We
were merging to get a broader customer base,” Colson said. The goal
was to merge, go public and acquire other companies. “We also were
helping our customers as they expanded into telecommunications and cable
businesses. We needed to get that expertise to be a national player,”
he added. Quanta Services completed its initial public offering in February
1998 and expanded from 60 customers to more than 300 by the end of that
year. Its secondary offering in January of 1999 raised more than $100
million for ongoing acquisitions. Increased outsourcing by the utilities
drove the 25.6% annual internal revenue growth experienced between 1996
and 1999 by the companies that comprised Quanta Services at the end of
1998.
Quanta’s net revenues
in 1998 were $150 million and reached $2.1 billion in 2001 at the height
of the telecommunication industry growth. In 2002, the company’s
net revenues declined to $1.75 billion. “Our customers were hurt
by the California energy crisis, the Enron bankruptcy and the subsequent
drop in energy trading,” said Colson, along with the falloff of
investments in the telecommunication and cable industries. As a result,
Quanta’s growth rate has stagnated.
Now, at the beginning of 2004,
Quanta Services has reached critical mass. “ We serve over 400 customers
and are more focused on internal growth and maintaining cash flow,”
Colson explained. He predicts spending will return to normal over the
next two years.
Looking to future business
growth, Colson pointed to the nation’s transmission grid which was
built largely after World War II and now needs a major overhaul. It has
huge bottlenecks because it was designed for individual markets and not
for wheeling power across states. It is also suffering from a lack of
maintenance. Colson explained that the transmission grid reached this
point because utility balance sheets don’t support grid-rebuilding.
Utilities are still looking
at segregated systems and not looking at how to initiate solutions. Initiatives
will have to come from outside the utilities, probably at the federal
level to move them to action, perhaps in the form of tax incentives, higher
rates of return or new rules imposed by the Federal Energy Regulatory
Commission, he concluded.
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