Growing demand to upgrade and maintain the obsolete grid in the US presents vast investing opportunities for private equity firms working in the utilities sector, said Mark Spender, partner at Bernhard Capital Partners.
In September, Bernhard portfolio company United Utility Services of Baton Rouge, Louisiana-based agreed to acquire BHI Power Delivery, a Weymouth, Massachusetts utility transmission and distribution services provider servicing Florida, Texas, Alabama, New York and Oklahoma.
Over the years, part of the grid has been battered by extreme weather conditions, or in some cases, the demographics have changed, adding pressure to upgrade. Demand is also growing because of utility companies adding power generated from new sources such as renewable energy to their grid, hence the need to upgrade. Utility companies usually outsource services to upgrade the grid.
“We saw the shift in investment by the electric utilities,” Spender said. “Historically, they have invested heavily in power generation, but over the past five years that has shifted considerably. Today, the vast majority of new investment by these utilities goes into the transmission and distribution infrastructure.”
Bernhard has been beefing up its portfolio to position itself for the rising demand in transmission and distribution services.
In January, UUS acquired B&B Electrical & Utility Contractors, a Mississippi-based company focusing on new construction, renovation and service upgrades for commercial and industrial facilities in states such as Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Tennessee and Texas.
In September last year, UUS scooped up Williams Electric Company, a Shelby, North Carolina-based company, which operates in North Carolina, South Carolina, Virginia and Georgia.
While there are a couple of large, national competitors providing these services, for the most part, Spender said, the industry is very fragmented.
“We wanted to consolidate several of those smaller businesses to build one of the leading providers of transmission and distribution services. This allows us to take the efficiencies of a larger organization, such as being able to offer a more complete suite of services or improved safety standards,” he said.
Spender noted that there are significant growth opportunities from the investment that the utilities and the federal government are making into the power grid. Some utilities now have billion-plus dollar budgets specifically for upgrading their transmission and distribution infrastructure.
“The investment into transmission and distribution infrastructure continues to grow at a rate that is three to four times GDP,” he said.
Asked about returns, Spender said Bernhard has “consistently been able to generate a minimum of 20 percent annual returns,” mainly by building businesses that are the leaders in their sectors and by optimizing their performance.
“Over the past several years, we were first focused on assembling the right pieces of the puzzle. A variety of services, the right companies in specific regions and most importantly, the right people,” he said. “We believe we have accomplished that. So today, that focus is shifting to cross-selling services, to improving profitability and to gaining market share by becoming the preferred transmission and distribution services provider to our utility customers.