Underground Construction - January 2018 - 13

struction on oil and gas. As pricing fell in the summer of 2014, the value
of companies in the UCC Index declined. While we anticipate this trend to
decline as the communications industry grows and more power lines are
moved underground, the UCC companies will continue to be impacted by
the price of oil.
As we look at performance across the UCC Index, the companies seeing
the most improvement have connections to materials and the communication segment. Poor operating performance from select companies
decreases the mean UCC Index values, and we view the median as a better
proxy for average operating performance this quarter. EBITDA from the
index is nearing an all-time high and year-end expectations are strong due
to increased oil and gas opportunities, backlog and good execution from
the major players.
The UCC Index companies' trading metrics have improved throughout
the quarter. In particular, Dycom and MDU are seeing a strong resurgence in the market driven by good operating performance and underlying industry dynamics. Median values are the best proxy again due to outsized multiples from select companies in the UCC Index.
The fourth quarter of 2018 was punctuated with some large transactions that will impact the market landscape for many years to come.
Interestingly, the two largest transactions occurred with our Canadian
neighbors. First, CCCC International acquired Aecon Group for approximately $991 million USD. CCCC International is the financing platform
for overseas businesses of China Communications Construction Company Limited, currently the third-largest international construction company in the world.
Aecon's infrastructure services group performs heavy civil, transportation infrastructure, and water and wastewater treatment facility
construction. The transaction will grow CCCC's international presence
and increase Aecon's ability to take up larger and more complex projects
through a greater capital base.
The second significant acquisition is the purchase by Oaktree Capital
Figure 3: UCC Index Companies' Operating Performance

Management's GFI Energy Group ("Oaktree") of one of the members of
the UCC Index, NAPEC Inc. ("NAPEC"). NAPEC is publicly traded on the
Toronto Stock Exchange and the offer by Oaktree represents a 35.4 percent premium to the closing price on December 1, 2017. The total transaction value of $320 million CAD includes the assumption of debt and
creates an implied enterprise value of approximately $250 million USD.
Oaktree seeks to leverage the network, financial resources and energy sector experience to grow its utility services in North America. We anticipate
growth through acquisition and an expansion of both its U.S. and Canadian power operations.
Lastly, MYR, Emcor and Aegion have completed recent share buybacks, and multiple public companies have completed shelf offerings that
would provide access to public funds for select purposes. This implies two
things: first, public companies in the industry view their stock as undervalued and the purchase of the stock is a reasonable use of capital. Second,
the cost of equity is low and public companies believe that they can use
equity to grow their businesses through either green-fielding operations
or acquisition.
Figure 4: UCC Index Companies' Trading Metrics
Enterprise
Value (EV)

EV/
Revenue

EV/ EBITDA

EV/ EBIT

MDU Resources Group, Inc.

7,199

1.7x

11.5x

17.3x

2.3x

Quanta Services, Inc.

6,789

0.7x

10.0x

14.5x

1.6x

MasTec, Inc.

5,170

0.8x

8.5x

12.1x

3.0x

Dycom Industries, Inc.

4,114

1.4x

10.6x

17.6x

4.9x

Primoris Services Corporation

1,546

0.6x

8.8x

14.0x

2.7x

Aegion Corporation

1,163

0.9x

9.4x

15.2x

1.8x

MYR Group Inc.

675

0.5x

9.0x

19.0x

2.2x

Matrix Service Company

453

0.4x

21.3x

-444.1x

1.4x

Layne Christensen Company

370

0.6x

27.2x

-26.4x

4.3x

NAPEC Inc.

246

0.7x

9.5x

32.9x

1.8x

Willbros Group, Inc.

147

0.2x

-4.5x

-2.8x

0.9x

Company

Price/
Book

Enterprise
Value
(EV)

LTM
Revenue

LTM EBITDA
Margin %

LTM
RoA %

MDU Resources Group, Inc.

7,199

4,294

14.6%

4.1%

10.2%

Quanta Services, Inc.

6,789

9,091

7.5%

4.8%

8.3%

MasTec, Inc.

5,170

6,346

9.6%

7.4%

20.9%

Mean

0.8x

11.0x

-30.1x

2.4x

Dycom Industries, Inc.

4,114

3,024

12.9%

7.9%

20.7%

Median

0.7x

9.5x

14.5x

2.2x

Primoris Services Corporation

1,546

2,403

7.3%

5.8%

13.1%

Aegion Corporation

1,163

1,343

9.2%

4.0%

-6.6%

MYR Group Inc.

675

1,373

5.4%

4.0%

5.9%

Matrix Service Company

453

1,126

1.9%

-0.1%

-1.6%

Layne Christensen Company

370

602

2.3%

-2.0%

-49.7%

NAPEC Inc.

246

341

7.6%

2.3%

1.2%

Willbros Group, Inc.

147

797

-4.1%

-8.3%

-55.8%

Mean

6.7%

2.7%

-3.0%

Median

7.5%

4.0%

5.9%

Company

LTM
RoE %

Figure 5: Recent Deal Activity

Source: S&P Capital IQ, data as of December 8, 2017; all data is TTM.

Announced

Target

Acquirer

Business Description

12/04/2017

NAPEC Inc. (TSX: NPC)

Oaktree Capital Management

Power T&D

11/06/2017

New England Utility
Constructors

Patterson-UTI Energy

Directional Drilling

11/03/2017

Infrastructure & Energy
Alternatives

M III Corporation

Renewable Energy

10/26/2017

Aecon Group Inc.

CCCC International

Infrastructure, Energy
and Mining

10/25/2017

O-Tex Pumping, LLC

C&J Energy Services

O&G Field Services

09/05/2017

Multi-Shot LLC

Patterson-UTI Energy

Directional Drilling

Source: S&P Capital IQ, data as of December 8, 2017; all data is TTM.

January 2018 Underground Construction

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Underground Construction - January 2018

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