Infrastructure engineering deal
US-based Quanta Services recently announced it would buy rival US-based InfraSource Services in a $1.25 billion deal. Both companies are involved in a variety of specialized construction areas. They are nig players in laying electrical transmission lines. They are especially dominant in the telecommunications industry, where they perform infrastructure services. These include laying cable and building towers. Both companies are particularly involved in expanding fiber-optic networks for telecom giants AT&T and Verizon.
InfraSource is involved in several other construction businesses, including waste-water facilities, electrical plants, paper operations, and mining. Quanta Services also works with electric and gas utilities, cable TV companies, and transit systems.
In part, the move is a geographical one. Quanta is based in the South and Southwest, while InfraSource has most of its operations in the Northeast and Midwest.
But it is also a move to get in position for an expected explosive growth in the industry. As a Bloomberg News story ("Quanta Agrees to Buy InfraSource for $1.26 Billion", 3/19.07) put it:
The deal will position Quanta to tap increasing spending by U.S. utilities as they upgrade their power networks to handle rising electricity use by their customers and meet tougher reliability standards planned by federal regulators. The company is betting that utilities will outsource more construction and maintenance services to cope with their aging workforces.
Apparently the utility industries face enormous loss of employees through retirement over the next five years. Meanwhile, power consumption is growing, and both phone and electric companies are replacing aging infrastructure.
As the buyers of these services tend to concentrate, so will the providers. The big power and telecom companies need big service companies that can serve them nationally. Only the big can serve the big.
