HB Global: Florida deal seen driving growth
It's not Walt Disney or beach vacations that will see Bob Whalen traveling back and forth from Harrisburg to Florida over the next year.
He will be splitting his time between Central Pennsylvania and Central Florida to ensure a seamless transition for the biggest acquisition in his company’s history. Whalen is president and CEO of Harrisburg-based HB Global LLC, the new holding company for mechanical services giant H.B. McClure Co.
Last month, HB Global acquired Nash Plumbing and Mechanical LLC, a Wildwood, Fla.-based provider of commercial plumbing and mechanical services.
It’s the company’s first acquisition outside of Pennsylvania. Nash, which does about $40 million in annual revenue from large commercial construction projects throughout the Southeast, also represents the first piece of a long-term plan to make HB Global a bigger name on the East Coast.
Most of Nash’s contracts are for hospitals, convention centers and airports, including a new convention center in Miami and a Veterans Administration hospital in New Orleans.
Whalen’s primary job in 2018 will be marrying the culture of his employee-owned organization, which had more than 500 employees prior to the deal, with a large family-owned company with about 200 employees that serves an entirely different region.
It’s a crucial task.
Getting everyone “on the same page,” Whalen said, will help HB Global as future deals pop up across its three divisions: Nash, H.B. McClure and Montgomery County-based IT Landes, which was acquired in 2014.
Including IT Landes, H.B. McClure finished its fiscal year in September with about $92 million in revenue, up from about $80 million last year.
It wouldn’t be the first mechanical services company to become a national or regional brand.
The industry boasts several large firms that tout a broader U.S. footprint. Much of their growth has come as a result of acquisitions.
Whalen and his team are no strangers to making deals. Since 2010 H.B. McClure has made 12 other acquisitions, increasing its presence in Pennsylvania while boosting the value of shares held through the company’s employee stock ownership program, or ESOP.
However, H.B. McClure alone bore the cost of those other deals.
HB Global formed in October as a way to give H.B. McClure greater financial flexibility.
LLCs offer a flexible ownership structure — owners can be individuals or entities such as corporations or other LLCs — as well as favorable pass-through tax treatment for the partners.
But the structure also could come in handy during mergers and acquisitions.
The limited liability company structure under HB Global treats the assets of each division as a separate business capable of making smaller acquisitions on its own without impacting the operations of the parent’s other two divisions.
HB Global, meanwhile, could bring in outside investors to help cover the cost of larger deals, Whalen said.
For example, the company could sell small ownership stakes to private-equity funds in exchange for investment capital to finance big deals, said Salvatore Bauccio, an attorney with McNees Wallace & Nurick LLC in Harrisburg. He has represented the company on recent acquisitions, including the Nash deal.
The LLC structure also makes it possible to sell shares in each of the divisions to help wrap up deals, he said. That type of transaction would not impact ownership shares in the other divisions.
Not that there are any plans.
HB Global likely will hold off undertaking another big acquisition for a few years, Whalen said. But it is good to have options in the future.
The IT Landes and Nash deals, the two biggest in the company’s history, were three years apart. It may be that long before the next large one transpires.
“After that, we may do (deals) more quickly,” Whalen said. “It depends on the resources we have, and we’re being more selective.”
The Florida deal, meanwhile, creates new career opportunities for HB Global’s midstate employees who may want to relocate but stay with the company.
With the growth in the construction market, all three divisions are busy. Whalen cited a backlog of projects with contracts valued at $150 million.
If another recession hits and construction slows down, he’s confident the geographic diversification of HB Global’s companies and service mix will help stabilize revenue.
A shortage of qualified technicians to hire remains another concern, Whalen said, as construction-related fields have struggled to find skilled workers to meet current project needs.
Bigger projects on the horizon
The leadership team at HB Global doesn’t want to grow just to grow, Whalen said. Acquisitions have to make sense culturally and they need to add value for the ESOP while expanding either the company’s footprint or its service capabilities.
Most deals will be what he calls “bolt-on” acquisitions of smaller service companies that help HB Global and its subsidiaries build their names.
The Nash deal offers an opportunity at diversification, Whalen said, and could allow the company to bid on the proposed federal courthouse project slated for a site at Sixth and Reily streets in Midtown Harrisburg — although there is no timetable for construction.
Without Nash and the capabilities it adds, H.B. McClure would probably be a subcontractor to a larger regional or national prime contractor on such a project.
“There are only so many companies that have the project sophistication,” Whalen said.