Three Companies into One

Nuprecon is no more. The large demolition/abatement/hauling/concrete cutting/recycling contractor has changed its name to NCM Group, with divisions underneath it reflecting the company’s branding change. C&D World’s William Turley sat down with company Chairman John Hennessy and COO Dave Whitley to discuss changes, the company’s role in the demolition industry, and what the future of demolition might be.

William Turley: According to Demolition & Recycling International, the company is one of the largest demolition companies in the world. Is that correct?

John Hennessey: Right now we are number two to LVI, based on revenue.

WT: Is it true you are making a change to the company’s branding?

Dave Whitley: The industry should know the NCM Group is a platform entity with private equity majority owners. The growth came from organic and regional expansion, but also through acquisitions. Since July 2006, when we recapitalized the company with Evergreen, we acquired CST in February 2008, and in January 2009 acquired MARCOR to create that national footprint. We deliberated on how to position the organization going forward, how we are separating out the union versus non-union identity brands, and how we wrap that all up underneath an umbrella brand. The consensus of the executive team was that we become “NCM Group.” John Hennessy is the chairman of the joint companies and Sage Khara, founder of CST, will be the CEO of the joint companies. It will have two operating entities, union and non-union. The union entity previously known as Nuprecon is now NCM Contracting Group LP. The non-union entity, which is the merger of the CST and MARCOR non-union companies, will be NCM Demolition & Remediation LP.

NCM is the acronym of Nuprecon, CST and MARCOR. We are bringing together this singular brand to the marketplace, much like others have done with a singular brand, including a common website, changes in licensing in all of the states, etc.

WT: Is the determination of what company will operate in a state determined by the union status?

DW: Actually there is some overlap in some markets. For example, we are union and non-union in California. The work is pursued and executed separately, where we have a wall around one company that is union to be in compliance, and the other one is also there. It is common the two entities will pursue different kinds of work in different sectors in the same state, depending on what is optimum.

WT: How will NCM Group grow in the future?

JH: We are looking to do both acquisitions and fuel further organic growth. We are structured for significant expansion that can be absorbed through our 22 offices nationwide. There are currently several opportunities due to the macro-economic conditions, competitions inability to weather the downturn, and higher owner and general contractors demand for safe, professional and competitive services.

We are considering opening new strategically placed offices and establishing a foothold in market sectors we haven’t historically been in due to the expansive breadth of expertise we now have with out combined companies. On the acquisition front, we do look at a number of opportunities, probably one a month on the average. Although there are a number of excellent companies out there, it’s very difficult to find the right fit geographically, culturally and operationally. In the next six months, we will have a serious outreach program to recruit and retain some of the great talent that is currently available.

WT: Why did CST and MARCOR work out so well for this company?

JH: There is obvious geographic explanation for the success, different areas of expertise, but more importantly the leadership and integrity of teams is what has made the difference. With Nuprecon, even though we did different types of projects, we generally worked for general contractors. There was a larger emphasis on the large complex interior strip-and-gut projects, and almost all of our work was union. With CST, the majority of its work was non-union and for industrial clients, so there was very little overlap. When we added MARCOR, it primarily performed environmental work and its operations were on the east coast and California. Most of the clients were environmental consulting firms so not much overlap and a great chance for the three companies to come together. Subsequently, it’s now much more difficult to find a good acquisition fit since we have so many areas and services already covered.

WT: What is the most successful and profitable sector for the company?

JH: We consider ourselves generalists and based on so many different factors, one sector may be more profitable than another at any given time. We just focus on being the very best that we can in all aspects of our business and the rest seems to take care of itself. Our business model is to provide anything a customer needs to prepare their building or site for new construction or renovation.  

DW: It is comprehensive scope verticals and comprehensive market verticals. Anything from federal, marine, transportation, salvage asset recovery, emergency response, general contracts on commercial buildings, especially select strip-and-guts, seismic upgrades, implosions, abatement and remediation…it sounds like a lot, and it is a lot. We are very active in all sectors.

WT: So is any one of those more profitable and successful?

DW: Well, negotiated private work always is better than anything else.

JH: That is so dependent on who the customer and client is. It has been a very competitive marketplace for a long time, and margins have come down to the point where companies were bidding well under what it cost to perform the work. There have been very few markets that there is any real margin. Typically though, the more difficult, larger and higher profile of the job coupled with more stringent regulatory, bonding and owner requirements the better we do. Fortunately, we have had good jobs in all market sectors even in these difficult times. It’s really been the strong customer relationships that we’ve built over time that have carried us through.

DW: That’s exactly it. The more partnering, preplanning and collaboration there is ahead of time, and the more the stakeholders’ interests are aligned, the more successful the outcome will be for the owner and the more profitable it tends to be. It is that basic, but it is very difficult to achieve on a consistent basis.

JH: Dave’s exactly right, owners and contractors are once again looking for quality, safety and professionalism, versus low bid.

WT: How about green demolition and LEED. How important is this NCM?

DW: It has been integrated into our business every day for almost 10 years now. It is literally part of the DNA of the project profile—and not only to be competitive to meet the market demands and to make the economics work, but just as a way of life. It is a rare that we look at something that does not have recycling performance standards, or we don’t do something internally to achieve diversion. We have set up regional specific activities related to the construction waste side as well as demolition. Salvage and asset recovery has always been a large part of growing our business.

WT: How much is salvage and recycling a part of your business?

DW: Each scenario is unique. There are some guidelines, but it is very difficult to put a price to, say, a100-year-old sugar mill that doesn’t have any drawings. You have to go through all the risk assessments and environmental components related to the job, and then what it is worth? As any large contractor knows, there is a significant amount of risk  in the market from the sell side of the material to the bid side in terms of evaluating quantities.

WT: Are bid prices realistic nowadays, or are they cutthroat?

JH: There has been a trend upward in bid prices. The last couple of years have been unprecedented. I have never seen anything like this before. You could see bid ranges on large projects from $8 million to $20 million, for the exact same project—  it’s unbelievable! What happened is that many of the contractors that took those jobs at such low numbers, they’re out of business, or have been hurt so badly that they are now bidding to make a profit not just generate sales. If you follow BidWatch, on the larger jobs there would be 15 or 20 bidders, now it is down to a more realistic five to 10. For the smaller, local projects where we were having seven to 12 bidders, we’re back to three to six. Definitely has been a positive change in that regard. Still very competitive, but a trend upward.

DW: A subset of that is the public and federal market where the large procurement is now occurring. Some companies bidding into that had never worked in that playground before, didn’t really understand what it took in respect to the ancillary costs, overhead costs, handholding, just doing business with those public entities. When you do a couple of those projects, realize what it takes, what a high level of sophistication and resource commitment that is needed, then the price starts to go up.

JH: The best indicator that things are changing now is we’re getting projects where we’re not the low bidder. There was a period of time where low bid took it every time. That has definitely changed in the last six months.

WT: Speaking of low bids, there was a recent awarding of a contract to take down a copper smelter in El Paso where the demo contractor paid $1 million for the business. Does NCM go after that kind of business, does it work?

JH: Most definitely. CST has done a significant amount of those jobs over the years with great success. Based on current commodity prices that are near all-time highs and the project metals contents, you can often perform the remediation and demolition at no cost and in some instances actually return significant cash back to the owner. This is not a game for the faint of heart though. The volatility in the metal markets and the difficulty in accurately determining the quantities produce wild swings either way. That’s why a number of fair minded and sophisticated owners prefer a cost sharing relationship.

WT: Are the high prices for scrap a benefit or detriment to a company of your size?

JH: Definitely helps our industry and our company since owners have a great opportunity to get rid of huge liabilities they’ve had on their books for years. It is a chance to get these facilities taken down now and realize the value of the real estate while the commodity market is so hot. This is a very good thing for the industry, economy and owners.

WT: Do government regulations hamper your demolition and recycling activities? Does it tilt the playing field to your way because you have the staffing to better handle these?

DW: I think we are one a handful of companies equipped to effectively handle those demands. And it is not just the regulations. It is safety standards, which are enormous. It requires the correct safety infrastructure. Not just to talk safety, but you really have to have some significant meat behind your safety program; infrastructure, execution, site-specific safety people, credentials, training, response incidents, documentation, etc. It is not talk the talk, you must walk the walk. We have seen in the past few years a material increase in those demands and expectations for safety. You have to have significant investment in overhead to meet that demand. The trick is getting the marketplace to pay for that overhead.

WT: What is the future for small demolition companies—can they compete in this environment?

JH: Not without a significant increase in infrastructure to not only comply with the rules and regulations, but to meet the demands of much more sophisticated owners and contractors. For example, five years into our business we decided to hire an HR director, shortly thereafter, an IT director, then a safety director. This was before it was popular to do those kinds of things. That put the foundation in we needed to controlled and sustainable growth. Until you make the initial commitment those contractors will continue to struggle and they will stay a local contractor.

DW: It is not just the infrastructure for the company and the complexity and sophistication there of, it is the same thing with project types. Many structures and facilities are approaching the end of their useful life. As an industry we are faced with new challenges, such as modifying an historic building to modern standards such as seismic upgrades, but also preserve the facades. The amount of engineering and related work has grown exponentially. Because of this, there will be an increasing stratification of contractor type and specialties. A company may decide what specialty it should pursue, and hone its skills to get better at that to have an advantage. Otherwise, the company must go all in and significantly staff up to meet the modern demands.

WT: Does NCM now deal more with general contractors or owners?

JH: Historically Nuprecon has worked for general contractors 85%, of the time while CST worked for owners 80%. Between the whole group it is very diverse now in that regard. A lot of the work we are currently looking at is on federal projects where there is significant general contractor build back so we are a subcontractor. CST and MARCOR still work directly for owners the majority of the time.

DW: We have seen an increase in work from general contractors because they are being asked to take on the environmental scope as a package. Traditionally that had been direct with owners. Now we are a turnkey solution as a specialty sub to a general that has been asked to manage a scope they don’t know about nor quite understand. Also, there is more design/build delivery that requires the general contractor to be engaged in all facets of a project from the early stages.

WT: Estimators are a very important part of the business. Are they the backbone of the industry?

JH: I wouldn’t say necessarily the backbone because there are so many important people and processes involved in taking a project from the sales and marketing aspect all the way through the completion of a project. Our estimators are critical to the process though and we treat them as a valued member of the NCM Team. For estimating, we have developed a very comprehensive proprietary estimating system, different from what most demolition contractors use. We do a lot of unit pricing based on a difficulty factor. In addition, we have a very complex estimating review process. Based on the size or type of project, there is peer review but also management review. The combination of great processes, excellent estimators and a world class support team is what makes us what we are today.

WT: Equipment is a large part of this business. Is it better for a company so spread out such as yours to own or lease?

DW: It is really a combination. We are going to have an increase in equipment needs as we flesh out a full scope of services in all of our branches. For now we move equipment around or we have long-term, national agreements with rental companies to get what we need when we need it. It is a juggling act right now.

WT: What recycling equipment do you have, and will you expand in that area?

DW: CST does have some crushing equipment. If we perform that scope it will be regional and job specific. It is not a primary focus for us right now.

WT: So you are using established recyclers in various markets?

DW: That is what we are currently doing with most of the material.

WT: What do you see happening in the demolition industry right now, in the future, and of course, what is NCM’s role in all of that?

JH: I would look at a couple of things. There is a distillation process going on, and you are going to see companies that emerge from this downturn much, much stronger. They will be streamlined because of the types of projects they have gone after, which include a lot of the government work with their extra rules and regulations. The next generation of demolition contractors is going to be more savvy, diverse and strategic. Owners and contractors are becoming much more sophisticated on demolition, remediation and other environmental projects, what the needs are, and how to reduce their risks and liabilities. Bonding, contracts, and project requirements are becoming much more complex. You have to adapt to survive, and this is something you should see. There are lot of good demolition contractors out there, many of them with a lot of years of expertise and knowledge. Thanks to the great work the National Demolition Association and others have done over the years, people are becoming better educated. Now there is a bigger emphasis on training and safety. Some of it has been forced, but the smart companies are doing it proactively for all the right reasons.

On the industrial side, with commodity pricing the way it is now, there is going to be a lot of work in that sector. It is almost a new beginning where the demolition industry is going to flourish. We are the first ones to feel the pain of a downturn, and we are the first ones to come out of the downturn. If you want to see how the economy is going to do in the future, see how demolition contractors’ revenue and profit is doing.

NCM’s goal is to be a leader, to be the very best at what we do, not just to make s profit but a real difference. It’s about being the best with a customer driven passion. We have spent a lot of time building our businesses based on what the customer needs are, and to that end, we’ve been successful. Now our goal is to be the number one contractor, not necessarily in revenue, but in providing industry leading safe, quality and professional services.

DW: From a macro industry perspective, my greatest concern is that we are 10 years behind where we need to be. The demolition/environmental business is 10 years behind where the market is and their expectations. So we are in catch up mode, catch up in education, attracting talent to the industry, and raising the standards of professionalism. The NDA and the industry as a whole know that, and have strived to address that. But those companies that can step up more quickly and reach those goals that would like to see for the rest of the industry will have a competitive advantage. They will be able to be nimble, reactive and even proactive to where the market is headed. As for the overall economy we don’t really care what is going on in the overall economy—because our diversification and our footprint, we should be dominant in our space.

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