Underground Construction - July 2022 - 16

Utility & Communications Construction Update
over 10 percent more accurately reflects
current inflation and the impact to both
businesses and consumers, alike.
Along with price, housing supply
data is a leading indicator of recessions,
and the most recent uptick suggests
we are on the leading edge. A rise of
over eight months in supply foretold
the 2008 financial crisis, the decline in
the early 1990s, and the inflation crises
during the early '80s.
Housing prices were already at record
highs across the United States.
With the rates increase, there have been
FIGURE 7: Recent Deal Activity
Announced
Target
May 2022
May 2022
April 2022
April 2022
April 2022
Sorensen Companies
Bandera Utility Contractors
American Power
Valiant Energy Services
Unified Utility Alliance
significant declines in consumers' ability
to pay for those houses and in the ability
to build new, affordable homes.
The result is a major increase in supply
that we don't expect will abate until
the Federal Reserve can lower rates
once again. Therefore, underground
and site construction tied to new-home
development is likely to decrease, since
generating a return on those investments
will be much more difficult in a
high-rate environment.
The Utility & Communications
Construction Index (UCCI) presented
Acquirer
Congruex
Argonaut Private Equity
GridTek Utility Services
GridTek Utility Services
National OnDemand
Business Description
Communication services
Underground wet utilities
Power T&D
Power T&D
Fiber construction
below covers performance of the sector's
publicly traded stocks year-to-date
(FIGURE 4) and over the past three
months (FIGURE 5).
S&P 500's decline was the steepest
drop in that index to start any year since
1939 (the Great Depression). In the
past month, S&P 500 has come off the
lows of the year but will likely move into
bear territory (down >20 percent) as
the year progresses.
UCCI, in contrast, has performed
relatively well, primarily due to the rising
oil prices and expected rotation of funds
into infrastructure investments that have
previously been funded through the
Infrastructure Investment and Jobs Act.
Companies comprising the UCCI
have held valuations and maintained
consistent
performance,
despite
the
headwinds that are facing other industries.
We expect the service companies to
experience pushback on price increases
from both investor-owned utilities and
municipalities, as their customer base
struggles with rising utility bills. Thus,
margin pressure from labor, limited price
increases and fuel prices may impact performance
in the remaining months.
The pace of underground infrastructure
mergers and acquisitions moderated
somewhat in the second quarter
of 2022. Primary areas of interest for
acquirers remains the communication
and power markets, although Argonaut
acquired Bandera Utility Contractors to
enter the wet utility construction space.
As interest rates rise and valuations
for public companies decline, the gap
between what a seller is looking for and
what a buyer views as accretive begins
to widen and creates a more challenging
acquisition environment. We expect
the second half of the year to be more
muted, compared to the record activity
in 2021. UC
DANIEL SHUMATE,
Managing Director,
FMI Capital Advisors Inc.
16 JULY 2022 | UCONonline.com
http://www.sauereisen.com http://www.UCONonline.com

Underground Construction - July 2022

Table of Contents for the Digital Edition of Underground Construction - July 2022

Contents
Underground Construction - July 2022 - Cover1
Underground Construction - July 2022 - Cover2
Underground Construction - July 2022 - Contents
Underground Construction - July 2022 - 4
Underground Construction - July 2022 - 5
Underground Construction - July 2022 - 6
Underground Construction - July 2022 - 7
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Underground Construction - July 2022 - 9
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Underground Construction - July 2022 - Cover3
Underground Construction - July 2022 - Cover4
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