Pablo Hernández Schmidt-Tophoff
Lee Wynn Tan
A once-in-a-generation effort to upgrade and expand America’s infrastructure is underway.
Growing demand for energy driven by the development of artificial intelligence, industrial offshoring and continued electrification across the economy, together with an increased focus on ensuring national energy security and improving climate resilience, means that trillions of dollars will be spent to build and improve US infrastructure over the next few decades.
EPC companies, specializing in delivering complex projects on time and on budget, will play a critical role in executing the construction of our nation’s most critical infrastructure.
The industry has faced key challenges over time: an unbalanced sharing of risk with customers, a shortage of skilled labour, inflation and supply chain disruptions, to name a few. These have contributed to a turbulent period for the EPC sector, resulting in cautious investor sentiment, reduced access to capital, fewer opportunities for growth and a reduction in more challenging end markets.
But the importance of the US infrastructure mission has begun to improve the fortunes of the EPC company in a significant way. Ambitious capital programs for the foreseeable future have forced clients to recognize their reliance on trusted and qualified contractors to meet the pace and magnitude of their own capital budgets. They realize that there are only a limited number of contractors with end-market expertise, the ability to largely self-perform, and value through end-to-end service offerings.
While a national or global footprint can be important, so can being strategically located near key customers and in high-demand regions. Increasingly, EPCs are becoming symbiotic partners rather than mere commodities, forming relationships with customers that include participation in key decisions to shape their future growth plans.
These relationships also provide EPCs with the basis for long-term improved risk sharing and favorable contractual arrangements that can lead to more consistent and cost-effective execution.
The EPC sector is also focused on improving productivity. To meet growing demand, companies are increasing their skilled labor base, selecting a network of high-quality subcontractors, and expanding talent promotion and retention. The rapid advancement and adoption of digital technologies and improved data collection through AI, geomatics, drones, virtual reality and remote monitoring are also improving overall efficiency, collaboration and communication.
EPC companies are well positioned to take advantage of strategic opportunities that, if executed correctly, will allow them to reap benefits from this once-in-a-generation infrastructure mission.
Strategic M&A strategies have enabled companies to scale profits, extract synergies and better address challenges such as rising costs and an aging workforce. Mergers and acquisitions have also enabled EPCs to gain an immediate presence in key new end markets such as data centers and renewable energy, and to capitalize on long-term emerging macro trends.
As a result, the EPC sector and related infrastructure service companies are driving record levels of investor interest, especially for companies with strong market positions and platform characteristics.
Seen as the main long-term beneficiaries of infrastructure construction, investors and strategic buyers are looking to capitalize on favorable tailwinds and expected growth and profitability.
Industry dynamics will continue to evolve, but the industry is well positioned to take advantage of the strategic opportunities available that, if executed correctly, will allow companies to reap substantial benefits from this once-in-a-generation infrastructure mission.
By investing more in workforce and operational development, advocating for more balanced risk sharing, and embracing strategic transformation when necessary, EPC companies are not only meeting the immediate demands of the current US infrastructure boom , but will also safeguard its long-term sustainability and its indispensable role in shaping this market.
Pablo Hernandez Schmidt-Tophoff is managing director and Li Wynn Tan is director of the Energy, Power and Infrastructure Group at global financial advisory firm Lazard. They can be reached at pablo.hernandez@lazard.com and li.tan@lazard.com, respectively.
