Back to the fold | Herb Sargent negotiates the purchase of the 79-year-old earthmoving company founded by his grandfather

In mid-August, Herb Sargent was in something of a pickle. His Hampden construction company, Sargent & Sargent, had bid on a job in the early spring to rebuild the runways at Greenville Municipal Airport. But because the bidding process was slowed down by a snag in locking down the federal funding that would pay for the bulk of the project, Sargent & Sargent didn't find out until mid-August that it had won the $3.8 million contract. Less than a month later, the airport would be hopping with visitors during the annual International Seaplane Fly-In, and there was plenty of work to be done before then.

If that wasn't enough, there also was the matter of Sargent & Sargent's July acquisition of H.E. Sargent, a competitor roughly three times the size of Sargent & Sargent. Both Sargent & Sargent and H.E. Sargent, located in nearby Stillwater, specialize in preparing sites for construction and earthwork jobs such as highway and road repair. The Greenville job was the first where employees from both firms would team up on the same project. And with the deadline looming, Sargent says there was no room for error. Of the 25 days Sargent & Sargent had before the Sept. 8 weekend fly-in, at least 10 of them would be used up by administrative work, leaving just over two weeks to excavate runway sections, install new drainage and repave the runways. That meant workers from the two companies ˆ— which Sargent describes as "staunch competitors" ˆ— needed to avoid any bickering about which company was better and just get to work. "We had, and H.E. Sargent had, taught our troops that the other guy was the competition that we had to beat," says Sargent. "I liken it a little bit to the Civil War. Along the borders, there were people who had to get along again [after the war]. It doesn't carry that social gravity, of course, but there was some bad blood. We were two companies slugging it out, but now we're good friends."

And evidently good friends that can share a jobsite. Sargent says the firms worked together excellently during the Greenville airport job. "We had it open well in time for the fly-in," he says. He adds that the company got the thumbs up on the job from not only the crews working in Greenville, but also from town officials and even pilots who landed on the freshly paved runways during the fly-in.

But while the two firms have shown that they can play well together out in the field, there's still plenty of work to be done behind the scenes, where Herb Sargent faces the challenge of integrating the companies into one seamless unit. Since the acquisition, the companies have maintained the Sargent & Sargent and H.E. Sargent names, and in many ways still operate as separate entities. That's quickly changing, says Sargent, but he admits that meshing operations at the companies is a "ticklish process."

At the same time, Sargent has to figure out a new operational strategy for the merged company. With a combined heft of roughly 450 employees and revenues last year of roughly $125 million between the two firms, according to a Sargent estimate, the firm has both the personnel and the financial resources to take on larger sitework and earthwork jobs. "It's a good thing," says Peter Vigue, CEO of Pittsfield-based Cianbro Corp., of Sargent's acquisition. "This will surely make his company stronger over time."

An emotional transaction
The particulars of the company's future, however, aren't keeping Herb Sargent awake at night. Though he admits that integrating the companies, both operationally and strategically, is a tricky proposition, Sargent says he scored a big victory just by closing the deal. That's because early this summer Sargent wasn't sure that the acquisition of H.E. Sargent ˆ— which he had spent months putting together ˆ— would ever happen. On a typical day, Sargent says he'd wake up in the morning feeling sure that all the loose ends had been tied up and that the deal was just inches from being finished. But by lunchtime, that hopefulness would be washed away and Sargent would be convinced that Sargent & Sargent and Ballwin, Mo.-based Fru-Con Construction, H.E. Sargent's parent company, wouldn't be able to come to terms on the deal. "There were big swings because of a number of factors," he says.

For starters, Sargent says he worked hard to make sure he was evaluating the company with a purely analytical eye, not allowing family ties to affect the proceedings. After all, H.E. Sargent had been founded in 1926 by his grandfather, Herbert E. Sargent, and the younger Sargent spent 12 years working at the company before founding Sargent & Sargent in 1992. (H.E. Sargent was sold for an undisclosed amount to French construction firm Razel Freres SA in 1988. When Razel was itself purchased by German firm Bilfinger Berger in 1994, H.E. Sargent was shuttled off to Fru-Con, another division of Bilfinger Berger.) While he tried to keep his emotional ties to the company in check, Sargent says that even his closest confidants were telling him to get the deal done at any cost. "They weren't terribly helpful in ditching emotion," he jokes.

Somewhat surprisingly, it was Herbert E. Sargent who kept the most level head while the deal was being evaluated. "My grandfather's still alive," says Sargent, "and he more than anyone was concerned that we operated on a business evaluation level rather than an emotional level. He was interested in making sure we evaluated the downsides."

Gwendolyn Lanzer, a Fru-Con spokesperson, did not say why the company decided to sell H.E. Sargent, but Herb Sargent says that he heard in February that Fru-Con was aiming to get out of the heavy civil engineering business ˆ— the bread and butter of H.E. Sargent's business. (Lanzer said in an e-mail that she did not know if the sale was part of any strategic decision on the part of Fru-Con to get out of that line of business.) He inquired about the business and in April began evaluating it after formally expressing interest in acquiring H.E. Sargent. By early May, the two sides constructed a framework for the deal and Sargent began his due diligence, researching the company's valuation and negotiating the price. (Neither side would disclose terms of the acquisition, citing a confidentiality agreement.)

Sargent says he looked at the situation and figured that acquiring H.E. Sargent could kill two birds with one stone. For starters, H.E. Sargent was the largest earthwork contractor in Maine, and represented Sargent & Sargent's biggest competitive threat. Purchasing the company would eliminate that threat while at the same time making the combined company a dominating force in the Maine construction market.

What's more, Sargent says that his company's growth had stalled out ˆ— a function of Sargent & Sargent's size and the scope of work available in Maine. According to those in Maine's construction industry, companies like Sargent & Sargent are somewhat insulated from competition because there aren't too many large-scale jobs that attract out-of-state companies with deep pockets. But at the same time, that limited market means companies like Sargent & Sargent don't have the luxury of picking and choosing big-ticket jobs that will keep their crews busy for months at a time. "It's very rare to see out-of-state companies come to Maine for earthwork jobs," says Mike White, president of White Bros., a construction firm in Westbrook that specializes in sitework and earthwork. "There's the odd job here and there, but generally the capacity is right here in Maine to do all the earthwork."

In search of new markets, H.E. Sargent during the past decade or so has expanded its reach beyond Maine, successfully bidding on jobs in New Hampshire and Vermont and setting up a satellite office in Ashland, Va., that's used as a launching pad for projects in Virginia and Maryland. And, since 2000, the company also has been expanding the scope of its jobs to include full-scale, start-to-finish construction projects, according to Steve Perry, an estimating and marketing manager at H.E. Sargent. Perry, a 30-year veteran of the company, says that change in direction was passed down through Fru-Con, and was supplemented by a host of new hires who specialized in so-called "vertical construction."

The reaction to that change, says Perry, was decidedly mixed among H.E. Sargent employees. On the one hand, having more control over projects and crews helped keep jobs on schedule. But Perry says the company's new direction sent an unsettling message to employees. "Anytime there's change, there's uncertainty," he says. "Uncertainty about not knowing where the owner is going to go, what direction we're going to go in or what kind of company we're going to be."

Sargent says the acquisition of H.E. Sargent will help stabilize the status of the company's roughly 350 employees. What's more, Sargent notes that there's very little redundancy between the companies, meaning that major layoffs are not likely to occur as a result of the deal. And, he says, the deal is a vote of confidence in the employees, a group that Sargent sees as the company's arbiter of success. "For employees, I think [the acquisition] establishes their roots," he says. "It kind of drives those roots down deeper. When they were owned by Fru-Con and [parent company Bilfinger Berger], this operation in Stillwater, Maine, as big as it is to us, was bug dust to that huge German conglomerate."

Bidding for bigger jobs
Sargent says he already has begun shifting H.E. Sargent's corporate focus from what it was under the Fru-Con banner: volume, volume, volume. "Volume to me is way down the line," says Sargent. "Just the edict that you have to increase volume every year almost requires that you ignore what's best for people. Without people, you just don't get it done."

Sargent says he acutely recognizes the importance of his company's workers in the overall success ˆ— or failure ˆ— of Sargent & Sargent. His opinion was strengthened in 2000, when he began realizing that his top-down management approach was hindering growth at Sargent & Sargent. Because Sargent took control of nearly every project the company took on, bottlenecks developed at the top of the company. Sargent figured that hiring a handful of people to help manage the company's projects ˆ— and effectively delegating to those managers ˆ— would pay big dividends operationally. So instead of being immersed in the particulars of each project, Sargent has been able to step back and take a bigger-picture view of the company. "The company was really constrained by me," he says. "I felt like we could grow if we could address that issue."

But while Sargent may not be as deeply involved in each project, Steve Perry says he's still a very visible presence in the field. That, Perry says, is a big change from working with a large company such as Fru-Con, where management doesn't have its boots on the ground on a day-to-day basis by virtue of the company's size and the number of projects managers constantly juggle. Having to navigate that corporate bureaucracy made it more difficult for workers to get quick responses than it would with a smaller company, says Perry.

He adds that there were pros and cons to being part of a large company such as Fru-Con, just as small, family-run firms have their good and bad points. For example, the management structure at a large company like Fru-Con's might naturally have more bureaucratic red tape than a smaller company, but Perry says that the financial backing of Fru-Con allowed H.E. Sargent to bid on much larger jobs.

Herb Sargent says H.E. Sargent routinely has multiple large contracts worth $10 million or more. By comparison, Sargent & Sargent had bid a few projects in that price range, but typically works on jobs worth a few hundred thousand dollars to a few million. For example, the company in 2000 worked on a $300,000 road project on Park Street in Orono for the Maine Department of Transportation and Lane Construction, the general contractor on the job. The next year, Sargent & Sargent acted as its own general contractor on a $3.3 million job to prepare the site for a new Home Depot store in Ellsworth. But the company has been somewhat hamstrung by its size, which has kept it from bidding for outsized projects. "The largest [project] without stretching the fabric of our company terribly is around $7.5 million," says Sargent.

As a result of the acquisition, Sargent & Sargent is considerably larger, expanding its 100-person workforce to roughly 450. This year, the company party, scheduled for early November, is being held at the Bangor Civic Center rather than at the Sea Dog restaurant. That's good news for more than the company, says Cianbro's Peter Vigue, whose company has hired Sargent & Sargent for a number of projects. The deal makes the company stronger, he says, but it also will benefit the state's construction industry. "The fact that they have strong financial capacity is very important to us," he says. "We're confident they have the ability to weather not just the good times, but the bad times as well."

But even though the combined companies will have the latitude to take on much larger projects, Sargent is wary of moving too quickly into new markets. The key in the near term, says Sargent, is to manage the companies' integration rather than focus on expansion. The two companies are expected to operate as a unified group rather than two independent companies, but Sargent says he's not sure what the new company's name will be. (He says to expect an altogether new name, because employees of both companies have put "a lot of sweat equity into both names," but noted that they're "not ready to pick that scab yet.") "By the end of the year, we want to stand up under one flag," he says. "Because both companies had such a huge backlog of work, to integrate it too quickly would be like deciding to put the plane down and change the crew in the middle of a transatlantic flight."