FdG Associates has bought a company that stands to benefit from the new economic stimulus package, but according to managing director Doug Dossey, there’s plenty of growth beyond that spending. “The stimulus package, we view, as icing on the cake,” he says.
Yet it’s hard to argue that the firm’s purchase of Joseph B. Fay Co., a civil constructor and demolition company, could have come at a better time. The company expects that business from the stimulus package could drive the growth for the first 12 to 18 months of FdG’s ownership. States like Utah and California face acute budget pressures, but with money from the stimulus package, they won’t have to match federal funding for their “shovel-ready” projects.
But Dossey is excited about investments in infrastructure beyond those related to the stimulus package. There are states, such as Pennsylvania, where Joseph B. Fay Co. is based, that don’t face capital constraints and plan infrastructure investments. “States know they need to take care of infrastructure problems. It’s been a concern since the I-35W bridge collapsed in Minneapolis,” he explains.
Further, Joseph B. Fay Co. has the ability to complete more challenging jobs like controlled demolition, water work and engineering, which are riskier and come with a greater reward. Because of this, Dossey says that the company’s margins are twice that of some of its competitors for more commoditized infrastructure work.
The deal is typical of FdG Associates, which targets family-owned companies. The firm purchased its stake from Robert Fay and Shawn Fay, who will continue to run the business, but who also wanted to look at estate planning. Through FdG Associates, the Fays set up a new, larger surety line with Liberty Mutual. Previously the company’s surety line had been with Zurich Financial Services. Likewise, FdG set up a large, untapped revolving credit facility with Fifth Third Bank.
For FdG Associates’ part, the stake purchase involved no debt. The firm invests $15 million to $50 million per deal, and the deal values Joseph B. Fay Co. at just under $100 million. The deal received a co-investment worth less than 10% of the company from Charlie Bacon, the CEO of another FdG deal in the industry, Limbach Facility Services.
The deal leaves room for one or two more investments in FdG Associates’ second fund, worth $310 million. The firm plans to enter the market in Q2 and will increase its fund size, although it hasn’t agreed on a target to date.
Correction: A prior version of this story implied that Bacon was no longer with Limbach Facility Services, which is incorrect. Bacon remains the CEO of the company, which is still owned by FdG.