Infra
Infrastructure Company Shimmick Plans IPO – Orange County Business Journal
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A construction company in Irvine with its eyes on Wall Street intends to do something about the crumbling infrastructure in the U.S.
Shimmick Corp. earlier this month filed an S-1 registration statement to go public, making it one of the few OC-based companies to plan going public this year by way of an initial public offering.
The underwriter for the IPO is Newport Beach’s Roth Capital Partners, the biggest investment bank based in Orange County.
Shimmick listed a placeholder $50 million figure for the amount it aims to raise in the IPO; that figure is likely to change prior to the deal’s completion. No pricing terms have been disclosed yet.
“We have a long history of working on complex water projects, ranging from the world’s largest wastewater recycling and purification system in California to the iconic Hoover Dam,” Shimmick’s registration statement said.
“We anticipate a prolonged and growing demand for the markets we currently serve, due to, among other things, growing coastal populations, climate change, drought and severe weather events, and increased activity along the inland waterways.”
$600M in Sales
The appearance of Shimmick’s base in Irvine signals a major new construction company in Orange County, one with more than $600 million in annual sales and 1,500 employees.
In 2022, the firm was the nation’s largest builder of dams, the third largest for water supply, the eighth largest for water treatment and desalination plants and the ninth largest for mass transit, Shimmick said, citing the Engineering News Record.
The company says it has a “significant” market opportunity as the U.S. Congress in 2021 passed a $1.2 trillion infrastructure bill.
“Climate change, along with other emerging issues like drinking water contamination, requires significant and complex solutions like those we provide,” the filing said.
Aecom Connection
Shimmick, founded in 1990 by John Shimmick, was acquired in 2017 by Aecom (NYSE: ACM), a Dallas-based infrastructure consulting firm with an $11.5 billion market cap and a local base in Orange.
That union didn’t work out well as Aecom sold its civil construction unit in early 2021 to focus on higher margin service units.
The buyer was Bethesda, Md.-based private equity firm Oroco Capital, whose manager since 2010 is Mitchell Goldsteen. He is now executive chairman of Shimmick.
Goldsteen has a long history on Wall Street, including having worked at Alex, Brown & Sons, The Carlyle Group and Merrill Lynch.
“Mitch has been a believer in the renewal of American infrastructure and has owned, operated, and managed companies of all sizes across the infrastructure space,” Goldsteen’s LinkedIn page said.
Shimmick Chief Executive Steven Richards was previously executive vice president of civil construction at Aecom, where he was responsible for domestic and international construction operations.
Aecom is the third-largest engineering firm in Orange County, reporting $138.5 million in local sales for the 12 months ended June 30, according to the Business Journal’s annual list.
Shimmick executives and Roth Capital were unable to speak with the Business Journal, citing IPO quiet period restrictions.
New Strategy
After it became independent in 2021, Shimmick began a new strategy to build smaller and mid-sized projects “with less risk and higher margins” than it had under Aecom.
“We are beginning to see the benefits of that transition,” its IPO filing said.
Shimmick was initially based in Oakland after its spinoff, with additional offices in Irvine. Its SEC filing now lists its headquarters as 530 Technology Drive in Irvine, where it leases 6,000 square feet of space at Irvine Co.’s Discovery Park campus.
The company hasn’t previously appeared on the Business Journal’s annual lists of engineering or construction firms.
Its primary customers are water districts, sanitation districts and flood control districts, including the Orange County Water District and the Ports of Long Beach and Los Angeles.
It’s worked on projects across the Midwest, including a Shimmick-led joint venture that replaced an aging Olmsted Dam on the Ohio River, where more commerce traverses than any other location on the entire U.S. inland waterways.
$1.3B Backlog
As of June 30, its backlog was $1.3 billion, with half comprised of water projects.
Revenue rose 16% to $664 million in 2022 with an adjusted profit of $29.5 million. For the first six months this year, sales increased 8.8% to $319.3 million with an adjusted net loss of $12 million.
Water and other critical infrastructure spending is forecasted to have a 5% compound annual growth rate between 2023 and 2027, Shimmick said.
While that growth rate doesn’t sound high compared to high-flying tech companies, Shimmick’s filing said the demand is huge, particularly in California, where half its revenue is generated.
Currently, it’s raising the main dam in Folsom, set for completion in 2027, that will enhance flood control by increasing temporary storage capacity to reduce flood risk in the greater Sacramento area.
It noted California delivers drinking water to around 40 million people through a network of water facilities. The state has more than 420 wastewater treatment plants and processed more than 5 million acre-feet, or nearly 2 trillion gallons, of influent and effluent water in 2021.
“California’s water infrastructure has deteriorated over the last several decades,” the filing said. “The cost of California’s water infrastructure needs to be increased to over $51 billion.”
In House
Shimmick plans to keep a lot of its work in-house rather than use subcontractors.
“We believe we have the ability to self-perform many of these projects, enabling us to compete for complex projects and differentiating us from many of our competitors,” the company’s IPO filing said.
“Self-performance also enables us to better control the critical aspects of our projects, reducing the risk of cost and schedule overruns.”
The company suggested growth at its rivals “has plateaued absent additional capital infusion or that otherwise may be seeking a liquidity event, which we believe presents opportunities for us to further our growth through strategic acquisitions.”
Shimmick still counts some issues with Aecom, including recovery of a claim on a legacy project that could cost as much as $40 million. Shimmick had $61 million in cash and equivalents as of June 30; it also has net long term debt of $29.7 million.
“Our limited operating history as an independent company and historical dependence on Aecom subject us to a number of risks, such as an inability to obtain necessary bonding and the need to incur additional operating expenses to create or supplement the corporate infrastructure necessary to operate as an independent company,” the SEC filing said.
How Bad is US Infrastructure?
The U.S. has 16,000 publicly owned wastewater treatment systems, many of which were built in the 1970s under the Clean Water Act and are now reaching the end of their expected 40- to 50-year lifespan, according to Shimmick Corp.’s IPO filing with the SEC.
Nationwide, water pipes average 45 years old, and some components are over a century old, despite an expected lifespan of 50 to 100 years, it said.
It is estimated there are over 91,000 dams with an average age of 57 years across the U.S. Approximately 15,600 dams in the United States are classified as high-hazard structures, with an estimated rehabilitation cost for non-federal dams of nearly $20 billion.
The inland waterway network in the United States is comprised of approximately 12,000 miles of inland navigation channels as well as an additional 11,000 miles of intracoastal waterways owned and operated by the U.S. Army Corps of Engineers.
“Most of the locks and dams are well past their 50-year design life,” said Shimmick’s SEC filing. “Estimates show the need to rehabilitate federal dams is approximately $27.6 billion.”
A Hoover Dam Builder
Shimmick Corp. says it can trace its history to 1912, with the formation of a joint venture called Morrison and Knudsen that would go on to build several large projects, most notably the Hoover Dam.
Morrison and Knudsen ran into financial troubles in the 1990s and then was acquired by other companies, including Aecom in 2014.
Shimmick, which was begun by John Shimmick in 1990, focused on the heavy civil construction market in the western U.S., growing to 1,000 employees and about $300 million in annual sales by the time it was sold in 2017 to Aecom.
Shimmick’s portfolio of projects include the Golden Gate Bridge in San Francisco, the Gerald Desmond Bridge Replacement in Long Beach and the HART Airport Guideway and Stations design-build project in Honolulu.
Shimmick and Morrison and Knudsen were part of the same unit that was spun off by Aecom in 2021.
“Shimmick’s roots date back to the Hoover Dam and today it works on some of the most critical infrastructure in the USA,” Shimmick Executive Chairman Mitchell Goldsteen said on his LinkedIn page. “Shimmick has the best team in the business and joining it has been an amazing journey.”