Sales of GJ construction companies part of national trend
When Ron Tipping announced last week that the company his wife’s parents started more than a half-century ago had been bought by a firm formed specifically to acquire building-materials companies like Grand Junction Pipe and Supply, it represented the latest example of a longtime, family-owned Grand Junction construction-related business selling to a larger, out-of-area entity.
Industry leaders say such a transaction is part of a national trend in the construction trade in which larger companies looking to gain a competitive advantage are snapping up smaller businesses whose owners are at or nearing retirement age or are in need of some financial muscle after staggering through the recession.
“The Great Recession weakened many firms, and often these sales are done after a period of business distress,” said Anirban Basu, chief economist with Arlington, Va.-based Associated Builders and Contractors. “In many cases, these families don’t want to sell, but they are selling because they have to, because their banking relationships are not as strong as they used to be or because bonding companies are no longer willing to participate with them.
“Businesses are left with the choice of folding or selling to a larger, better-financed company outside the region.”
Since the beginning of April, four Grand Junction-based construction companies have sold: steel supply and recycling business Bonner Supply Co. to Pacific Steel & Recycling of Great Falls, Mont.; Harbert Lumber to ProBuild of Denver; and Elam Construction and Grand Junction Pipe and Supply to Summit Materials of Washington, D.C.
The owners of Harbert and Grand Junction Pipe attributed their decision to sell at least in part to the economy, while the owners of Elam and Bonner said they wanted to retire. Harbert and Bonner took on the names of their buyers. Most or all employees retained their jobs.
Christine Sartoris, president and chief executive officer of Associated Builders and Contractors’ Western Colorado Chapter, said construction companies that are well-positioned financially during an economic downturn will add assets, expand product lines and break into new markets in order to create an advantage over competitors.
“The reality is we’re in a global economy,” Sartoris said. “More and more you’re going to find companies, when the economy contracts, they have to expand. You cannot expect to stay in your own little neighborhood and be expected to compete unless you have a specific niche you serve. You have to start expanding. Contractors that don’t quite understand that may be left behind.”
Experts say larger companies may have more cash on hand or better access to lines of credit than smaller businesses, another factor that can spark a sale.
For sellers, their children may either be uninterested in continuing operations or simply unable to shoulder the burden. Sartoris noted that many businesses that withstood the oil-shale bust of the 1980s found it more difficult to stand up to the recession because the latter event created a more widespread impact.
“You can’t leave Grand Junction, you can’t leave the Western Slope and find conditions that much better,” she said.
So what does the sale of the business mean for employees and customers?
In some situations, such as at Pacific Supply, conditions improve. Ex-Bonner employees, all of whom stayed on with Pacific Supply, are now part-owners of the company.
Basu, though, said mergers and acquisitions often result in some loss of employment.
“One reason a larger firm will purchase a smaller one is to cut costs,” he said. “In an environment dominated by managing the bottom line, many firms are looking to create synergy on the cost side.”
There also can be increased costs for consumers and subcontractors who may have formed long-standing relationships with the old owners and are now becoming familiar with the new ones.
“In construction, as in many industries, people become accustomed to doing business with one another. There’s a sort of informality in which business is conducted. That informality can get people into trouble, but it can also save time, in a sense,” Basu said.
Sartoris said companies that are fewer in number but larger in size can spell higher costs for customers, although she noted it depends on a variety of factors.
“With less competition, your price might start out low, but as you buy up the competition, with less competition you could raise your price,” she said.
But there can be benefits, too. Basu noted that larger firms can be at the leading edge of the construction industry and bring with them additional resources and boast technological competence not enjoyed by smaller companies.
Diane Schwenke, president and chief executive officer of the Grand Junction Area Chamber of Commerce, contends what’s more valuable than a company being owned locally is the sort of presence and relationship that company has in and with the community.
And, she argues, the sale of construction companies that were passed down from one generation to the next shouldn’t be taken as a sign that the days of family-owned and operated businesses are drawing to a close.
“Who knows today which client of (Business Incubator Center Executive Director) Chris (Reddin) may be our next Grand Junction Pipe or our next Valley Office (Supply)?” Schwenke said. “It’s not the death of the family-owned business. It’s just the changing of the guard and changing of ownership.
“You will always have family- owned businesses in any community. They may look a little different, but they’re going to be there.”