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Despite some of the dire prognostications about next year’s business climate, Wall Street’s bear market and continuing geopolitical concerns about the war in Ukraine, some decent chances exist for growth in specific market sectors and certain geographic areas. Here are several of those 2023 growth opportunities to chase down and some challenges to overcome.
The possibility of a recession
When most folks look ahead to 2023, a potential recession is probably top-of-mind. Many economists agree at least a mild recession in the U.S. economy is quite possible next year, but the reality is that how deeply a recession could affect a company will largely depend on their own unique customer mix and geographic location. For instance, a Michigan-based distributor with an industrial focus may not feel as much economic pain in 2023 as a distributor with a contractor focus because of the amount of auto plant renovation and construction in Michigan as that industry transitions to electric vehicles.
Federal government’s infrastructure and CHIPs legislation
Funds from federal programs like the Infrastructure Investment and Jobs Act, CHIPS and Science Act and the Inflation Reduction Act will have a direct impact on the electrical construction market because of their intent to fund the installation of residential and commercial PV systems, microgrids, EV charging systems, grid upgrades and renovation of commercial facilities with more efficient electrical and mechanical systems. At least one electrical manufacturer told EW this influx of federal funding will be a “once-in-a-lifetime opportunity” for the electrical industry.
Life-science laboratories and data centers — two patches of growth
In the latest Dodge Momentum Index, Sarah Martin, senior economist, Dodge Construction Network, said data centers and life science laboratories “have thrived in 2022 and continue to support strength in planning activity.” We have talked often about the surge in data center construction and how they are loaded with electrical equipment, and a chart on page 18 lists several large data centers.
Life-science laboratories are an interesting niche because of the money biotech companies are investing in the development of new pharmaceutical drugs. Demand for the construction of these facilities has not been as affected by the work-from-home trend as other real-estate sectors because folks can’t bring home the high-dollar lab equipment and work stations.
The spike in acquisitions of electrical contractors
Distributors and reps have seen acquisition activity increase in a big way over the past year, but over the past few months, contractor acquisitions have been on the rise, too. News of a customer acquisition often sparks some anxiety because of concerns over the possible disruption of a long-time business relationship. Two of the bigger acquisitions of electrical contractors occurred in New England. EMCOR Group, Norwalk, CT, acquired Gaston Electrical Co., Norwood, MA, a electrical construction and low-voltage contractor with 2022 estimated revenues of approximately $140 million.
Another big deal was the acquisition by Crete Mechanical Group (CMG), Tampa, FL, Reilly Electrical Contractors (RELCO), an electrical contractor focused on the electrical and telecommunications markets based in South Easton, MA. CMG has built a portfolio of commercial HVAC, electrical, plumbing and building automation contractors through acquisitions. The company provides the contractors it acquires with a range of centralized accounting, human resources, procurement, sales and support resources Other electrical contractors the company has acquired include Crosby Electric and Crosby Communications, Montgomery, AL; and Piper Electric, Arvada, CO.
Another electrical contractor acquisition of note is MasTec’s purchase of Infrastructure and Energy Alternatives, Inc. (IEA), Indianapolis, IN. IEA focuses on renewable energy and infrastructure solutions and has completed more than 260 utility-scale wind and solar projects across North America.
Good luck chasing down these pots of gold and avoiding some of these potholes next year.