Roofing Contractorhas been reporting on the trend of consolidation among commercial roofing contractors since it began.

First Things First

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Roofing Contractorhas been reporting on the trend of consolidation among commercial roofing contractors since it began (Roofing Contractor, October 1998, cover story, “Colossal Contractor”).

Once the “roll-up” process was completed, the business of running the consolidated contracting businesses began. To date, there has been some key management turnover at several of the consolidated firms. Some have struggled with systems integration and developing a culture that would begin to blend the disparate roofing companies into one. Some haven’t even tried, opting to maintain strong individual operations. All have survived the birthing process and have been operating. But just recently, one of the consolidators has had to make the difficult choice to “de-consolidate;” fold up shop and go (as companies) in separate directions.

Integrated Roofing and Waterproofing Inc., Houston, recently placed its firm and five out of six partner contracting firms in Chapter 11 proceedings. A sixth partner, City Roofing of Memphis, Tenn., was placed in Chapter 7 (liquidation) and ceased to operate several months ago.

According to our sources, a number of factors played a part in the events that led to this tough decision, not the least of which was the discovery of significant problems in the two largest of the half-dozen original partner-contractors. The beleaguered Arthur Andersen Co. was involved in the due-diligence process at the beginning and is being challenged in a separate court action by investors. At any rate, these issues demanded time and focus from the very beginning, and left many of the anticipated synergies and gains from consolidation unrealized. Debt was shifted to prop up non-performing assets, which eventually took a toll on parts of the business that were functioning.

The future of the firm has been negotiated between investors, bankers and the partner contractors. Five of the six original partner contractors will survive and return to their original ownership — assuming agreement from the courts — within a relatively short period of time. Employees, vendors, and clients of the individual firms will remain largely unaffected by the proceedings.

The story of what happened at Integrated may become a case study some day, but for now there are a few lessons to be learned — not just how to dismantle a consolidation, but some practical ones as well.

The partner contractors of Integrated Roofing and Waterproofing Inc. did accomplish some of their goals, including the establishment of a 401(k) program. They were able to share knowledge, equipment and people, but were unable to execute a national-account sales and marketing scheme. Functional consolidation of assets worked, and because of relationships that will survive the break-up, will most likely continue. In other words, these contractors will remain consolidated in some functional areas, such as exchanging ideas, equipment and people.

Perhaps the end result of the experiment that was Integrated Roofing and Waterproofing will become a model for a new type of consolidation in the commercial roof-contracting industry: Consolidation where individual and independent, non-competing firms can band together to do business across a broad territory, perhaps even nationally. Given the independence of individual ownership, contractors could choose “cafeteria-style” from a menu of synergistic opportunities. The temptation of shared assets, buying power and shared knowledge even appealed to contractors too wary of outside interference to enter into a consolidation. Is it possible to have consolidation without cohabitation? We’ll see.