Power Surge

Steve Player interviews Randy Guba, executive vice president and chief financial and administrative officer with Integrated Electrical Services (IES).

Steve Player: Tell me a little about Integrated Electrical Services (IES).
Randy Guba: This company over a number of years had been on an acquisition spree, buying local electrical contractors and essentially rolling them up under the IES umbrella, as many other businesses did in prior years. It was a tactic that generally involved a loose affiliation of companies that organized under a holding company concept. When I joined the company in early 2007 there were about 27 independently run electrical contractors under the broad affiliation of IES.

SP: These would be local companies doing electrical contracting for the local construction industry?
Guba: That's exactly right.

SP: When did they start rolling up?
Guba: More than 10 years ago. That was during a time when a lot of companies were doing roll-ups. The belief was that by doing that and setting up a public equity funding structure, one could create shareholder value just from this loose affiliation of businesses.

SP: An economy of scale, if nothing else ...
Guba: Yes. They talked a good game about trying to get synergies and integration, but in reality these companies were quite often not integrated. Really you just added big corporate overhead to a bunch of companies that operated exactly like they did before being acquired.

SP: Doesn't seem very efficient...
Guba: No, it's not, and the business had gone through some difficulties several years ago. When they did these roll-ups, they also took on a large amount of debt; in this particular business case, the company acquired too much debt and was unable to service it, and went through bankruptcy. It emerged about three years ago. Mike Caliel, our CEO, had been recruited subsequently, and he recruited me in this financial role.

When the company was at its peak it was doing over $2 billion in sales. Over the years they had sold and closed down unprofitable business units, so post-bankruptcy it was about $1 billion in sales.

SP: It seems to be a very fragmented sector. Where does that $1 billion in sales rank in the industry?
Guba: Interestingly enough, we're number two. Despite being a relatively small company, we have a high position within the industry, but a low market share overall. We're really the only national electrical contractor. We have about 5,000 employees, and we operate in three segments: industrial, commercial, and residential.

SP: In today's economy, residential is under a lot of pressure. Are the other units facing the same type of stress?
Guba: You're right, the residential market has been under significant pressure for several years, which has had a major impact on that segment of our business. Until recently the commercial and industrial businesses were fairly strong, but lately we've seen our share of project delays and funding difficulties as the credit markets have dried up and construction has dropped off fairly dramatically.

The downturn hit us after Mike and I arrived. The new leadership team was brought in to help navigate the business following the bankruptcy. We had embarked on our restructuring program and had completed the first phase when the downturn hit.

I'll give you a summary of what happened. When we started we had 27 fully autonomous business units that had never been integrated; we had never had an integration strategy, and we had business leaders who pretty much set their own agendas. We had localized reporting that resulted in little transparency, so it was very difficult to understand what was going on in the business. We had controllers in each of the 27 companies who were backward-looking and who tended to be scorekeepers. There wasn't a lot of capacity for forecasting or understanding KPIs. We had some control weaknesses, and a lot of those resulted from personnel issues and problematic processes and systems.

Finance was historically aligned to local presidents and not to the finance function within IES, yet it had very little in the way of business partnership relationships with these presidents. From a market standpoint, business development was purely localized and opportunistic. So our role was to come in and develop a strategy that could tackle these problems and restructure the company.