Easy capital brings a flurry of consolidation.

With the stock market on a roll these days, it's a hot market for new stocks and a heady environment for anyone with a need to attract capital or an idea that could create value. Among the concepts that have piqued Wall Street's interest of late is the roll up, a business strategy of building big chains by buying up individual companies in fragmented industries.

In recent months, the trend has steamrolled right into the electrical industry. At least three new roll-up corporations have been assembled by merging electrical contractor firms into nationwide networks.

More of them are out there, and one of the groups worked on an informal basis before going public.

Some think this flurry of roll-up activity signals the leading edge of a trend toward consolidation among contractors, which have tended to be local, individual businesses.

These three mergers created nationwide electrical contracting corporations, each now with a sales volume substantial enough to put it among the 10 largest electrical contractors in the U.S.: Integrated Electrical Services, Inc. (IES), Houston, Texas; Consolidation Capital Corp., Washington, D.C.; and Quanta Service Inc., also of Houston. In each of these cases, non-competing firms have banded together to standardize procedures, lower overhead, share resources, win national contracts, add stability and gain competitive advantages.

It's Consolidation Capital Corp., or more precisely, its chairman and CEO Jonathan J. Ledecky, that makes this roll-up more that a passing curiosity, as you will read in Associate Editor Gail Johnson's interview with him in her article, "Ready to roll" on page 45.

Ledecky's past experience included forming U.S. Office Products through the acquisition of more than 215 companies. In that case, he's said to have increased annual revenues from an idea to $2 billion in four years, and he has similar ideas about the building maintenance industry. Not to mention that Wall Street stands willing to invest with someone with a track record of that sort.

Consolidation Capital has entered into letters of intent to acquire seven electrical contractors, including three that rank among the top 50 in the U.S. The seven had combined 1997 revenues of $277 million. It's envisioned as a "multi-discipline service organization in the facilities management industry."

Consolidation Capital formed up in 1997 as a consolidation pool, with plans to create national chains in fields currently made up of local, individually owned businesses, much like the scheme Ledecky pulled off with U.S. Office Products. The original prospectus didn't even name the specific industry targets, it simply suggested some possibilities, such as auto towing, veterinary practices and private aviation services.

The other two roll-ups may have less audacious leadership, but they're nonetheless treading the same path.

Quanta Service Inc., Houston, Texas, combines four firms that concentrate on utility line work. From Kansas, Indiana, Colorado and Washington state, the four firms have annual revenues of over $130 million.

Integrated Electrical Services Inc. (IES), Houston, Texas, quietly took shape as a national electrical contracting corporation in June 1997; in January 1998 it went public. In 15 separate transactions, IES has acquired 15 electrical contractors from around the U.S and a related electric supply company; combined revenue top $300 million.

The existence of these contractor networks, which seem to be the forerunner of many like them, augurs a change in distributors' relationships with their primary customers. (More than 40% of a typical distributor's sales go to contractors.) The most obvious red flag goes up in sales. One of the new companies has come right out and said, "We are going to try to get a group-buying discount...because now we'll be buying in bulk." IES has already met with a dozen manufacturers and plans to present a briefing soon to manufacturers, distributors and reps.

Some of these newly merged companies may have been your accounts. Others among your contractor customers may be thinking similarly. Local electrical distributors would do well to remain alert to these shifting tides if they wish to continue doing business with like-minded companies.