A publication of the California Construction and Industrial Materials Association
CONSTRUCTION OUTLOOK FOR
CALIFORNIA Baron Worthington, Manager of Economic Analysis, Vulcan Materials Co.
ESSENTIAL BENEFICIAL SUSTAINABLE
SEE INSIDE: 8
EDUCATION CONFERENCE
12
LEGISLATIVE
14
RESOURCES
Fall Issue
MOUNTAINS WILL CRUMBLE BEFORE OUR BELIEFS.
HitachiConstruction.com
COASTLINE Equipment
THE
CONVEYOR
2019 FALL ISSUE
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TABLE of CONTENTS
6
History
Forecast
4 CHAIRMAN'S LETTER 2020 Opportunities
90’s Expansion
Early 2000’s
Current Expansion
US: 3.7%
US: 2.9%
US: 2.3%
CA: 3.6%
CA: 3.7%
CA:2.8%
6 ECONOMY Construction Outlook for California CalCIMA Education Conference - Keynote Address by Baron Worthington, Manager of Economic Analysis, Vulcan Materials Company
14
8 EVENTS CalCIMA Education Conference Wrap Up
12 LEGISLATIVE 2019 Legislative Wrap
14 RESOURCES
18
California Minerals
16 BUSINESS
Is This the TIme to Sell Your Company (and How)?
18 WORKFORCE Filling the Talent Pipeline CalCIMA Holds First Orientation - Employment Bridge Training Program ON THE COVER:
Baron Worthington, Manager of Economic Analysis, Vulcan Materials Company - Keynote speaker at CalCIMA's 2019 Education Conference. The Conveyor is a publication of the California Construction and Industrial Materials Association. The views expressed herein are fixed expressions of the contributing writers and not of CalCIMA. All rights reserved. CalCIMA 1029 J Street, #420 Sacramento, CA 95814 (916) 554-1000 www.calcima.org www.distancematters.org
Published By Construction Marketing Services, LLC
Editorial Contributors Charley Rea, Director of Communications & Policy, CalCIMA
P.O. Box 892977 Temecula, CA 92589 (909) 772-3121
Adam Harper, Director of Policy Analysis, CalCIMA
Publisher Kerry Hoover khoover@calcontractor.com
Bill Capps, Jeffer Mangels Butler & Mitchell LLP
Graphic Designer Aldo Myftari The Conveyor is published quarterly each year by Construction Marketing Services, LLC All rights reserved. Reproduction in whole or in part without permission is prohibited.
Editor Brian Hoover bhoover@ironads.com
The Conveyor • 2019 Fall Issue
3
CHAIRMAN'S LETTER
2020 OPPORTUNITIES As we head toward the start of 2020, our association has many opportunities and challenges in front of us. You are most likely aware that our Governor is making some alterations to how the transportation funds will be utilized. It is not entirely uncommon for any head of government to make their tweaks based upon their interpretation of a law. Nevertheless, as the law states, the funds will go to transportation in some form, and in the end, it is usually funding some form of construction, most of which start with a foundation made from our products. Additionally, this is where our industries benefit. As a matter of perspective, there are still nine years of the transportation bill and $45 billion of funding available. As we are the suppliers of SB1, we all will benefit in some form, going forward. This leads us to the other challenge. The California unemployment rate, through September 2019, is at 4%. The construction work planning that started in 2019 will begin to break ground in 2020. Thankfully, as an association, we recognized the collision course between fewer workers and the ever-increasing unfilled job openings that are within our industry. This led us to look into starting a workforce development program. We spearheaded the first bridge to employment program this past September, in the San Bernardino Community College District. Other campuses within the California community college system, are lining up to introduce this program at their schools as well. Over the next few months, our industry and the companies you lead and work for will be engaged to promote these programs. Lastly, I would like to share, what many of you are already aware of, the retirement of our first and only President & CEO, Gary Hambly. Gary will continue to serve as our CEO, as the Board works on filling his position. Additionally, when a new CEO is hired, Gary will be onboard to assist in the transition. Thank you, Gary, for your service, and thank you for your assistance that will enable a smooth transition. As we look out into the next year, we see many opportunities in front of us. As I begin my final year as your chairman, the Board and I look forward to your participation in these challenges. With everyone’s participation, a win-win scenario is assured as we continue to work together toward the same objectives.
Sincerely,
Michael Toland President, Spragues' Ready Mix CalCIMA Chairman
4
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The Conveyor • 2019 Fall Issue
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ECONOMY
CONSTRUCTION OUTLOOK FOR CALIFORNIA CalCIMA Education Conference - Keynote Address by Baron Worthington, Manager of Economic Analysis, Vulcan Materials Co. By Charley Rea, Director of Communications & Policy, CalCIMA As CalCIMA members took a few days away from crushing rocks to attend the 2019 Education Conference in Napa Valley, Vulcan Materials’ Manager of Economic Analysis Baron Worthington crunched numbers during a keynote address on the economic outlook. Mr. Worthington’s talk looked at the economy from 4 perspectives: economic environment, leading indicators, the construction recovery, and the construction outlook. He further broke things down nationally versus California, and then concluded with a regional breakdown of key markets in California. While there is talk about another recession looming, Mr. Worthington seemed to favor continued growth through 2020. The good signs include employment growth and low inflation. A hindrance might be labor supply. In addition, California tends to finish stronger during an expansion than the rest of the nation. Noticeably, the construction sector in California has grown more than any other sector— including high tech--over the past year! Both nationally and in California, the post-Great Recession recovery in construction has been led by private investments, whether housing or buildings. The public sector has lagged, although road and bridge money in California from SB 1, the Road Repair and Accountability Act of 2017, is significant and about to be realized. Importantly, it is a large sum even adjusted for inflation. 6
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History
90’s Expansion
Early 2000’s
Current Expansion
US: 3.7%
US: 2.9%
US: 2.3%
CA: 3.6%
CA: 3.7%
As with the economy as a whole, there have been questions about the future direction of the construction sector. He answered this by showing that, based on a backlog of construction projects, he expects there to be significant public works upcoming. Highway starts are up double-digit in the past several months, after being flat for a year. And, starts for other public works, such as sewer and water works, are increasing. In general, the lack of public infrastructure work following the Great Recession would suggest there is a need to catch up. On the private sector side, it is hard to get an overall rosy picture for private housing. While starts of single-family homes may be overtaking multi-family homes, neither seem like they will be a driver of the construction sector. Most regions in California are
Forecast
CA:2.8%
showing declines in housing starts in recent 3 and 12 month periods. The high price of housing in California is limiting the number of people who can afford to buy a home. The recent decline in interest rates should provide a much needed boost to help with the affordability issue. For nonresidential buildings, starts are also declining, but California starts remain ahead of the rest of the country. The good news on the private side is that we are not overbuilt as we were prior to the Great Recession, so there is room for growth. Mr. Worthington concluded with a look at six major market areas in California and their overall outlook for public and private construction. The consensus is that public infrastructure construction will be positive, while private construction will decline. This is The Conveyor • 2019 Fall Issue
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Prop 42 added $1 B / yr
Prop 1B added $2 B / yr
NOTE: 3 year moving average Includes Federal funds administered by State Based on Dodge Construction Award Dollars
true for the Bay Area, Silicon Valley, Coastal Southern California, and the Inland Empire. The exceptions are that the private sector will be stronger in the Sacramento region, and both public and private sectors will be weak in San Diego. The biggest
Local Hwy funding initiatives held level
SB-1 & Local Initiatives potential
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risk—or constraint—on California’s economic growth will be having a sufficient labor supply. In the long run, it looks like we’ll have to keep crushing those rocks!
CalCIMA office. Contact them at: (916) 554-1000 or email spridmore@calcima.org n
Baron Worthington’s presentation is available electronically from the
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The Conveyor • 2019 Fall Issue
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7
EVENTS
ESSENTIAL BENEFICIAL SUSTAINABLE
CalCIMA EDUCATION CONFERENCE WRAP UP The essential, beneficial and sustainable nature of the industry was center stage at the 2019 CalCIMA Education Conference in presentations from some of the industry’s leading technical, legal and regulatory authorities. Board elections were also held and annual awards presented to leaders in our industry and association.
2020 BOARD MEMBERS Congratulations to the following members elected to board positions for the coming year: Lloyd Burns......................... Western Aggregates, LLC Herb Burton......................... Central Concrete Supply Barry Coley.................................Escondido Materials Dana Davis...................................... Teichert Materials Danny Deveraux.................CalPortland Construction Bryan Forgey................................................... Cemex Daniel Fritz................................. Lehigh Hanson West Will Haigh............................... Bonanza Concrete, Inc. Martin Hansberger................ Holliday Rock Co., Inc.
Gary Johnson.................... Granite Construction, Inc. Aaron Johnston........................................ Graniterock Steve Lode............................... National Ready Mixed Brock Lodge..................................... Vulcan Materials Jeff Redoutey...............................A & A Ready Mixed Jaret Ramirez........................Blue Mountain Minerals Michael Ruddy, Jr...............Allied Concrete & Supply Michael Toland......................... Spragues' Ready Mix
2019 EXCELLENCE IN SAFETY AWARDS Excellence in Safety Awards honor plants and individuals for their leadership, innovation and creativity in safety. Among those receiving annual safety awards were: Large Aggregate Plant ARVIN AGGREGATE FACILITY GRANITE CONSTRUCTION COMPANY Arvin, CA
Ready Mixed Concrete Category PLEASANTON PLANT RIGHT AWAY REDY MIX, INC. Pleasanton, CA
Safety Professional Award JULIO CAZARES, SAFETY MANAGER STEVENS CREEK QUARRY, INC. Cupertino, CA
Outstanding Safety Leadership Award CYNTHIA ESCOBAR, WEIGHMASTER GRANITEROCK Felton, CA
8
Small Aggregate Plant QUAIL HOLLOW QUARRY GRANITEROCK Felton, CA
The Conveyor • 2019 Fall Issue
1. Large Aggregate Plant Award
2. Small Aggregate Plant Award
3. Ready Mix Concrete Award
Safety Awards were presented by Mike Herges, Safety Manager, Graniterock & Diane Watson, Supervisory Special Investigator, Western District, Mine Safety & Health Administration.
4. Safety Professional Award
5. Outstanding Safety Leadership Award
1. Brett Wallace, Justin Hosley, & Dan Coontz, Granite Construction — Arvin Plant 2. Robert McGehee, Right Away Redy Mix, Inc. — Pleasanton Plant 3. Ben Snow & Cynthia Escobar, Graniterock — Quail Hollow 4. Julio Cazares, Safety Manager, Stevens Creek Quarry, Inc. — Cupertino 5. Cynthia Escobar, Weighmaster, Graniterock — Felton
2019 ASSOCIATION AWARDS Associate of the Year Award - Dedication to the association, commitment to the membership, and outstanding support of the industry. SCOTT TAYLOR - TAYLOR ENVIRONMENTAL SERVICES, INC.
President’s Award - Dedication to the mission and goals of the Association, and a commitment to the preservation of the industry. STEVE TOLAND - SPRAGUES’ READY MIX
Spirit of the Industry Award - Desire to advance the goals of the industry and demonstrates the passion to further the Association’s policy agenda. HERBERT BURTON - CENTRAL CONCRETE SUPPLY CO., INC. ( Not Pictured )
Benjamin J. Licari Distinguished Person Award An Individual who values CalCIMA and promotes its benefits to his peers to build a greater and more successful organization. GARY W. HAMBLY - PRESIDENT & CEO, CALCIMA
2019 LEADERSHIP AWARDS
The Conveyor • 2019 Fall Issue
9
BENEFICIAL SUSTAINABLE
EVENTS EMERGING LEADERS
EMERGING LEADERS CLASS OF 2019
The CalCIMA Emerging Leaders Program targets those within our industry who demonstrate high potential for growth, providing solid tools to participants that help them become leaders in our industry. Top Row (L-R): Albert Garcia, Lehigh Hanson Region West, Maya Grasse, Alston & Bird LLP, David VanMuyden, CalPortland, Zach Simpson, George Reed, Inc., Molly Archer, CalPortland, Graham Stephens, Sespe Consulting, Inc., Nic Armstrong, Teichert Materials. Bottom Row (L-R): Shubhada Gadkar, National Ready Mixed Concrete Co., Page Rossen, Mapisty, Inc., Coach Rick Kolster, Peak Performance Group, Michael Toland, CalCIMA Chairman, Spragues’ Ready Mix, Pearce Swerdfeger, Sespe Consulting, Inc., Desirea Haggard, CalPortland, Michael Sherman, Day Carter Murphy LLP, Derek Burger, Lehigh Hanson Region West.
EDUCATION PROGRAM During the keynote address by Baron Worthington, economist for Vulcan Materials Inc., highlighted the national and state economic outlook for construction and materials. The US economy is expected to continue growing for the 4th quarter of 2019 and full year 2020. The October 2019 Employment Report marks 109 consecutive months of job growth, with an average of 174k per month over the last 12 months (Oct was 128k). This represents the longest prior period of uninterrupted growth in 48 months (from July 1986 to June 1990). Labor constraints pose a particular challenge for the industry and US as a whole. As of September 2019, there were 1.0 million more job openings than people looking for a job. The California economy was slower out of the gate, but finishes stronger than the US as a whole during current expansion period. Employment gains have been consistent throughout the economic recovery. 1 out of every 7 net jobs created in the US over the last 12 months were in California. Construction employment growth in California has outpaced all other sectors over the last 12 months.
The general session included an update for transportation resources, arguments to counter nuisance attacks, building a talent pipeline for the future and tools for creating a positive perception for jobs and careers in the industry and a proposal by the graduating class of 2019 Emerging Leaders to establish a sustainability index were presented. Education sessions included environmental compliance, legal strategies for sustainability and a variety of technical talks were presented followed up by in-depth sessions focused on Ready Mix and mineral resources. “We were thrilled with the enthusiastic turnout of more than 300 attendees to our annual Education Conference,” says Gary Hambly President and CEO. “This Conference is one of the rare chances during the year for executives in the construction and industrial materials sector to get the industry, economic and regulatory information that they need to plan and make the most of the exciting year ahead.” n
Thank you to our 2019 Conference Partners • CalPortland • Central Concrete • Harrison, Temblador, Hungerford & Johnson • Hunton Andrews Kurth LLP • Jeffer Mangels Butler & Mitchell LLP • Lehigh Hanson - Region West • Lilburn Corporation 10
• • • • • •
McNeilus Truck & Manufacturing Mitchell Chadwick SESPE Consulting, Inc. Taylor Environmental Services Inc Teichert Construction Company Vulcan Materials Company The Conveyor • 2019 Fall Issue
LEGISLATIVE
2019 LEGISLATIVE WRAP By Adam Harper, Director of Policy Analysis, CalCIMA
T
his year was the first year of a two year legislative session as well as Governor Gavin Newsom’s first year as governor. Key issues such as the Dynamex decision and how California should adjust and enshrine it into statute, to the perceived risks of the Federal Administration to key democratic priorities such as the protection of labor, environment and housing were and will continue to be important issues of focus. In addition, several more targeted environmental proposals were explored, particularly measures focusing on ensuring compliance rather than setting new standards. As construction and industrial material producers, many of the bills signed into law and even vetoed will be of Interest. Probably the most significant human resource issue this past year in the Legislature was how to address the California Supreme Court’s decision in Dynamex, which placed a stricter standard on what is an independent contractor and applies retroactively. The decision was specific to occupations and industries covered by state wage orders. The Governor signed AB 5 (Gonzalez), which codifies Dynamex and expands it to the full Labor Code and does not address retroactivity. During the legislative deliberations, a number of exemptions were added for specific activities. Among these are a business-to-business exemption for situations where a contractor is “providing services directly to the contracting business rather than to customers of the contracting business.” There is also one for licensed contractor-subcontractor relationships, which includes “providing construction trucking services” for a contractor. The trucking provision expires in 2022. In environmental bills, nothing was larger than SB1 (Atkins) which was the topic of countless editorials and articles across the state. In the end, the complex task of drafting a bill that attempted to offset any harm the Feds might do via regulatory rollback was unsuccessful and Governor Newsom vetoed the bill, stating, California is a leader in the fight for resource, environmental, and worker protections. Since 2017, the federal government has repeatedly tried to override and invalidate those protections, and each time, the state has aggressively countered taking immediate legal action and deploying every tool at the state's disposal to safeguard our natural resources, environmental protections and workers. 12
No other state has fought harder to defeat Trump's environmental policies, and that will continue to be the case. While I disagree about the efficacy and necessity of Senate Bill 1, I look forward to working with the Legislature in our shared fight against the weakening of California's environmental and worker protections. While Governor Newsom’s exact concerns with SB 1 remain unknown, it seems likely concerns with water supply in the Central Valley were relevant to his decision to veto the measure. Democrat legislators such as U.S. Senator Dianne Feinstein and Congressmen Jim Costa, John Garamendi, Josh Harder and TJ Cox penned a joint letter to the Governor expressing concerns over the measure’s impact on voluntary settlements of the Sacramento and San Joaquin Rivers outflow standards. Other environmental measure which may impact CalCIMA members were signed into law. Two measures of note share a common theme. They focus on ensuring compliance with existing environmental standards by increasing governmental action to that goal. SB 205 (Hertzberg) seeks to ensure that every business that is required to be covered under the industrial stormwater permit is covered by having local governments ask businesses for one of four documents associated with the Stormwater Permit system during the business license renewal process. Businesses will be required to make statements under penalty of perjury disclosing among other items their SIC Code, their Waste Discharger Identification Number (WDID), WDID application number, notice of non-applicability identification number or no exposure certification identification number issued for the facility. Members may wish to review SB 205 and should be ready for its implementation in 2020 as they renew business licenses. The second measure that falls squarely in the ensure compliance with existing standard realm is SB 210 (Leyva) which creates guidelines for a Heavy Duty Vehicle Inspection and Maintenance Program. The program has been described as "smog check" for heavy duty trucks which is largely true, however, it is also being designed to track out of state trucks so it will have some differences. The development of this program will not be immediate, but will progress The Conveyor • 2019 Fall Issue
from a pilot program to a final rule over the next few years. The California Air Resources Board (CARB) is already working on draft rules to implement and test the ability to implement such a program. Senator Leyva and the Legislature included provisions such as fix it ticket status for repairs with a not less than 45 day timeline, and caps on fee amounts to help limit the uncertainties of implementation on business. Once fully implemented, the Periodic Smoke Inspection program shall sunset and companies will no longer be under its obligations. The promise for business is that it will hopefully be less burdensome than PSIP as well as make emissions regulations more accurately enforceable benefitting those who have complied vs those who have not. Time will tell if the program can meet these objectives. Perhaps no issue attracted as much legislative attention in 2019 as housing and it is a pressing issue to every Californian. The Governor came into office with a bold goal of 3.5 million new units by 2025 and there were no shortage of legislative measures designed to help the state achieve that goal. On October 9, 2019 Governor Newsom signed 18 different bills into law designed to help the state meet those targets. The methods were many from enabling more granny flats to incentivizing density. SB 330 (Skinner) was one important measure. As Senator Skinner (D) said during the signing ceremony, “California’s failure to build enough housing has resulted in the highest rents and home ownership costs in the nation and has deepened homelessness. SB 330 green lights affordable and market-rate housing that already meets local zoning rules and prevents cities from enacting new regulations that might limit the housing we so desperately need.” The measure is designed to make it easier to get permits for housing where local governments have already zoned for housing and to prevent local governments from removing already allocated lands from housing. It further streamlines hearings for approvals allowing no more than 5 public hearings and it prevents cities and counties from hiking fees or changing permit requirements after a preliminary application has been submitted. The measure sunsets in 2025, but it is refreshing to see bipartisan support for legislation targeted at overcoming key obstacles to housing production. 2019 was a busy legislative session with many complex issues being discussed. As with all government programs, the measures' test will be over time as the changes to law program changes in society. There remains a long list of challenges to address in 2020 and can expect another busy legislative session. n The Conveyor • 2019 Fall Issue
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RESOURCES
CALIFORNIA MINERALS ROUNDTABLE he California Minerals Roundtable discussion at this year’s CalCIMA Education Conference explored challenges and opportunities for ensuring continued mineral resources availability in the state. Fred Gius, supervising engineering geologist with the California Geological Survey (CGS), kicked off the session with a review of the process for classifying construction aggregates and the ongoing update to the CGS report, Aggregate Sustainability in California, which shows a 50-year aggregate demand compared to permitted aggregate reserves for various production-consumption regions in the state. Mr. Gius reviewed the CGS’s purpose and process for preparing and updating the projections and appealed to operators to respond to a new form that will assist in updating and improving the accuracy of the data and mapping needed for projections. Next, David Brown, president of Benchmark Resources, presented California Needs Its Minerals! Mr. Brown reminded us of the critical need that minerals provide to California industries and their unheralded contribution to the lifestyle enjoyed by every Californian. His presentation was both enlightening and alarming in its review of the historical documentation of California’s vast mineral wealth and how it has been compromised by decades of decisions made for more obvious societal values—like open space, recreation, and habitat—at the expense of limiting access to known and potential mineral resources. Mr. Brown first showed a connection between the minerals available in California’s unique and diverse geology and how those minerals are used in the state’s top economic industries. He provided an important perspective on the annual needs for construction aggregates and the relatively small cumulative area of surface mining disturbance in the state as compared to other land uses (Figure 1). Despite often negative attention, mining results in a very small land use compared to other industries and urban development. Mr. Brown’s presentation then showed, using shocking graphics, recent decades of land use policy and other special interest preferences that have limited access to California minerals, often making the minerals uneconomic to pursue (Figure 2). Mr. Brown reminded attendees of a nearly forgotten 1989 workshop that explored the industrial mineral resource supply problems facing the state at that time. Sponsored jointly by the U.S. Geological Survey 14
Figure 1. Total consolidated mining acreage (black square) as compared to other land uses.
and the California Division of Mines and Geology (now CGS), the 1989 workshop resulted in a publication titled, Industrial Minerals in California: Economic Importance, Present Availability and Future Development. That report recognized issues (e.g., depletion of sand and gravel deposits needed for low-cost construction materials, conflicting demands for resource-rich lands, urbanization over valuable mineral deposits, land-use priority issues, and public safety and reclamation) that are as relevant today as they were 30 years ago. The forum then opened with roundtable panelists, including Mr. Brown, Jason Marshall, chief deputy director of the California Department of Conservation, Pablo Garza, member of the State Mining and Geology Board, and Brent Leclerc, western division environmental manager of Vulcan Materials Company. The panelists discussed perspectives and experience in California minerals and fielded comments and questions from conference attendees regarding protecting existing mining operations, preserving The Conveyor • 2019 Fall Issue
Roundtable panelists (left to right): David Brown, Pablo Garza, Jason Marshall, and Brent Leclerc.
Figure 2. Land use designations restricting mineral access.
future access to mineral resources, facilitating more efficient mineral extraction permitting and development, and providing better public knowledge of minerals uses and their importance. The robust discussion among panelists and attendees explored ideas and solutions to the land use conflicts and mine permitting obstacles that hobble mineral resource availability. It is clear that industry and represented state agencies recognize these challenges, which are critical to the future of California, and that the next steps in this issue are ready to be taken. Stay tuned. n
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15
BUSINESS
Is This the TIME to SELL Your Company (and How)? By Bill Capps, Jeffer Mangels Butler & Mitchell LLP As a merger and acquisitions ("M&A") attorney in the building materials industry, I am frequently asked questions by clients and other friends about the potential sale of their businesses. Below are some of the frequent questions and the answers gained from my experience and expertise: HOW DO I KNOW THE RIGHT TIME TO SELL MY BUSINESS? The "right" time depends upon your personal situation. For example, are all your eggs in one basket? If so, owning a "one stock folio" is particularly risky for those over 50. Do you think there is any significant additional value to be developed in the business over the next few years? If not, what are you waiting for? What are your own personal financial goals? Can they be satisfied when you sell, pay your taxes and reinvest the proceeds? As some learned in the 2008 and 2009 financial crisis, trying to "time" the M&A markets can be risky. When the window for a good sale closes, we cannot know when it will open. In the meantime, the owner can experience a business reverse, a divorce, disagreement with other owners, or severe illness. By the time this article is published, the economy may be in the tank, the same, or better (unlikely). Your guess is as good a mine! WHAT CAN I DO TO INCREASE THE VALUE OF MY COMPANY BEFORE SALE? Fixing problems and improving the good features of your business are key to increasing its value in a sale. Examples of “aerobics for the company” (getting into shape for a sale or third party investment) include: ◆ examining and verifying entitlements (for example, a conditional use permit that has a long life will make it easier for the buyer to pay a higher price). 16
◆ analyzing burdensome (or helpful) supplier and customer contracts (for example, a contract to sell aggregate at a cheap price). ◆ getting commitment from important executives and employees (this is particularly true where the buyer is a “financial” buyer rather than “strategic buyer”). ◆ analyzing and solving environmental and other liability issues (the point here is really that the competence of management is called into account if there are unresolved problems in the business; buyers discount the price for unresolved issues and take the most pessimistic view). ◆ improving financial statements particularly where employment practices make the company vulnerable to potential class action litigation (e.g. overtime or time off policies not in accordance with the law). Financial statements are frequently adjusted to improve EBITDA (earnings before interest, taxes, depreciation and amortization) which is an important metric for financial buyers. It is important to remember that the purpose of due diligence from the standpoint of a buyer is not merely to determine whether or not there are problems which prevent the purchase of the business. The buyer wants to find problems in the business which the seller is not aware of since these serve to legitimize the re-negotiation (downward) of the purchase price. Therefore, any significant problem, which the buyer identifies before the seller does, ends up being to the buyer’s advantage. WHO CAN I TALK TO? Sometimes, it is lonely owning a business. Finding disinterested advice is hard, particularly on the topic of selling the business. Talking to employees or customers can make them nervous. After all, if the buyer is a larger company, your financial and HR staff are frequently redundant. The Conveyor • 2019 Fall Issue
Say, you are thinking of conveying the business to your children because they have sufficient intelligence and passion to operate it successfully. Unfortunately, there is an "M&A Industry" composed of wealth managers, investment bankers and transactional lawyers who earn fees if there is a deal to an outsider, but not so much if the business is conveyed to a family member. Trust is the watchword in this case. Smartness or skill or the number of deals done does not necessarily guarantee trust. DO I NEED AN INVESTMENT BANKER? HOW MUCH DO THEY CHARGE? Sellers frequently overestimate their knowledge about potential purchasers for their business and overlook buyers that are identified by investment bankers (who act essentially as brokers for a commission). In a recent example, a “surprise” buyer paid 10 percent more than anyone expected for the business and closed within 60 days. In that case, the buyer was completely unknown to the seller (and in fact was in a different line of business). Many of the “name” investment bankers will have minimum fee of $1 million and really do not want to deal with companies that are going to sell for less than $30 million or so. The bankers believe they do the same amount of work in selling a $100 million company that they do in selling a $50 million company. Not surprisingly they are seeking bigger deals.
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However, there are smaller investment bankers who will negotiate better fees and can produce good results. Part of the skill and experience you should be looking for in your professional advisors (such as attorneys) is knowledge about and introduction to the investment bankers. HOW LONG IS THE PROCESS OF SALE AND WHAT DOES IT CONSIST OF? From start to finish, it would be rare to be able to sell a small sized business (say, $50 million in purchase price) in under 9 months after you have fixed the problems and improved the good features of your business. Selecting the investment banker will require providing financial information so that the banker can advise you of their strategy for sale and approximate pricing. The banker’s process of soliciting indications of interest will require preparation of a “book” describing your company and providing this to potential buyers.
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Once a buyer has appeared which is willing to pay your price, a “letter of intent” is negotiated. In recent years, letters of intent have gotten increasingly more detailed, probably in order to shorten the process of preparation of a definitive sale agreement. Due diligence for the buyer is usually 60 days or longer and closing can follow shortly afterwards. n The Conveyor • 2019 Fall Issue
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WORKFORCE
FILLING THE TALENT PIPELINE CalCIMA Holds First - Employment Bridge Training Program
T
here are a growing number of job opportunities for construction materials workers across California as infrastructure repair projects ramp up, housing demand continues to climb and the industry prepares for a wave of retirements. The shortage of ready-to-work prospects in construction and materials has resulted in labor shortages in most companies, according to a 2018 workforce survey completed by the California Construction and Industrial Materials Association (CalCIMA). The Bureau of Labor Statistics predicts employment in construction and extraction occupations is projected to grow 10 percent from 2018 to 2028, faster than the average for all occupations, a gain of about 704,000 new jobs. Construction employment growth in California has outpaced all other sectors over the last 12 months with a 3.5% increase year over year. Overall growth in the economy and population will increase demand for new buildings, roads, and other structures, which will create new jobs in construction and extraction occupations. According to a 2018 economic impact report from Applied Development Economics, the median annual wage for all construction and materials occupations is $65,000, which is higher than the Bureau of Labor Statistics reported median annual wage for all occupations of $38,640. 18
Above: CalCIMA member company representatives speak at first student orientation.
GOOD JOBS AND CAREERS As California infrastructure undergoes much needed repairs over the next decade, thousands of new jobs will be created across the state, yet it’s hard to find people interested in those jobs because so few are aware of and understand the industry or the career opportunity.
“Most people don’t know where the material to build their roads, bridges and homes comes from. They just expect it to always be there,” Gary Hambly, CalCIMA President and CEO says. “Raising awareness of the good jobs and careers and increasing opportunities for training is a priority for CalCIMA and will be
The Conveyor • 2019 Fall Issue
key to our collective future success,” Hambly underscores. Over the last year, CalCIMA has been working with the California Community College system energy, construction and utility (ECU) sector to build a talent pipeline for the future, including the creation of new training programs created by industry for industry. BRIDGE TO EMPLOYMENT In October 2019, working with the San Bernardino Community College District (SBCCD) and other partners, CalCIMA launched a 48-hour pilot bridge to employment program aimed at students currently enrolled in their final semester of a related program of study at San Bernardino Valley College. The CalCIMA Bridge to Employment program curriculum was developed by working industry professionals in collaboration with ECU sector directors and SBCCD. Pilot classes wrapped up in mid-November with fourteen students and a 100% completion rate. Upon successful completion, students received SBCCD, CalCIMA and OSHA 10 certifications. They also received Aggregate Handbooks, work boots and interview suits. Once students have completed their technical training in welding, diesel mechanics, construction technology or other related program, they are set to begin applying for openings from among the more than 20 CalCIMA member employers who have guaranteed them interviews. Students in the SBCCD pilot bridge to employment program were introduced to the history of construction and industrial materials and received basic training in geology, equipment, extraction, plant and delivery processes as well as basic employability skills including resume writing, teamwork, communications, basic math and computer skills and other 21st Century Skills required in today’s workplace. The Conveyor • 2019 Fall Issue
Above: All 14 students who completed the program curriculum received aggregate handbooks, work boots and interview suits.
Above: Students in the SBCCD pilot bridge to employment program were introduced to the history of construction and industrial materials.
Above: Students also received basic training in geology, equipment, extraction, plant and delivery processes.
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WORKFORCE They also participated in a series of hands on exercises, safety training and on-site visits to working producer plants. Faculty members from the industry for the pilot program included Steve Toland, COO, Spragues’ Ready Mix and Joyce Pulliam-Fitzgerald, Production & Quality Control Manager, Elementis Specialties. NEXT STEPS The next step for the Bridge Program is to incorporate lessons learned and begin to replicate with other colleges in other parts of the Inland Empire before rolling out statewide. Mt. San Jacinto College has scheduled the Bridge training to begin in February 2020. Victorville Community College is also considering an early 2020 launch. Meanwhile, SBCCD is preparing to submit curriculum for review and consideration of the CalCIMA training curriculum for future non-credit and credit studies, which could begin in 2021 at the earliest. In March 2020, a second introductory training program will launch in Riverside County aimed at veterans, women, recently incarcerated, and those unemployed and underemployed. The program will be coupled with driver training designed to fill some of the hundreds of open driver positions with people transitioning or traditionally not aiming for work in this sector. Some are transitioning out of the military. Others are recent high school graduates. In addition, the college will be looking to attract and increase the number of women participating by inviting women to special orientation events. “We look forward to seeing graduates from these programs join our industry,” Hambly stated. “It will be important now to demonstrate that employers will step up to hire graduates from these programs in the short-term and commit long-term as we build out the pipeline and work to raise awareness.” n 20
CalCIMA PILOT BRIDGE TO EMPLOYMENT PARTNERS AT A GLANCE INDIVIDUAL PARTNERS • Inland Empire/Desert Regional Consortium • San Bernardino Community College District • San Bernardino Valley College • College of the Desert • California Community College System • Jon Caffery, Regional Director, Energy Construction and Utility Sector • James Morante, State Director, Energy Construction and Utility Sector LEAD FACULTY • Steve Toland, Chief Operating Officer, Spragues’ Ready Mix GUEST SPEAKER – IN CLASSROOM HANDS ON ACTIVITIES • Joyce Pulliam-Fitzgerald, Production & Quality Control Manager, Elementis Specialties IN CLASSROOM AND ORIENTATION SESSION EMPLOYERS • Cemex • Holliday Rock • Spragues’ Ready Mix SITE TOURS • Vulcan Materials • CEMEX • Women in Mining – shuttle bus sponsor EMPLOYER PARTNERS • Agcon, Inc. • Associated Ready Mix Concrete, Inc. • Blue Mountain Minerals • Brubaker Mann Rock • CalPortland • Cemex • Central Concrete Supply Co., Inc. • Chandler Sand and Gravel • Coast Aggregates • Escondido Materials • Granite Construction, Inc. • Graniterock • Hi Grade Materials Co. • Holliday Rock Co., Inc. • Lehigh Hanson Region West • National Ready Mixed Concrete Co. • Spragues' Ready Mix • Teichert Materials Co. • Vulcan Materials Company • George Weir • Werner Corp
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