Vertical V Pursues Growth of Five Business Units Organically and Through Acquisition

Environmental Business Journal Interview – Strategic Information for a Changing Industry, Volume XXIII, Number 12

Vertical V (Hollywood, FL) is a consulting and engineering firm launched in 2010 by engi­neering industry veteran Dickerson Wright, formerly of U.S. Laboratories, which he founded in 1993 and sold to Bureau Veritas in 2002, and more recently of Nova Group Services. With Vertical V, Wright as chairman and CEO is building an organization across five “vertical” business lines encompassing geotechnical services, civil engineering, municipal outsourcing, asset management, and environmental services. The company employs about 550 people at offices on the East Coast and the West Coast, in Mexico, and in various project offices in other locations. Wright spoke with EBJ about the progress he is making in establishing the company and about his outlook for the business over the next couple of years.

EBJ: When we last spoke with you about two years ago, you were CEO of Nova Group Services. What’s taken place since that time? Is Vertical V a new venture, or a re-branding of Nova Group Services?

Dickerson Wright: Vertical V is a new venture. I left Nova Group Services after it became clear that there were some sig­nificant obstacles to the chosen path of growth. Nova was owned by a private eq­uity firm, Stone Point Capital, and I was brought on as CEO to head the operations of the group companies. My charter was to grow the company organically and through acquisitions across five service lines. We targeted a number of potential acquisi­tions through the private equity structure, and we seemed to be getting seller resis­tance to valuations and to the type of deal structure.

My team, which had been with me at U.S. Laboratories, Bureau Veritas, and Nova, came with me to start up Vertical V. The company is so named because it is structured as five specific engineering-sup­port verticals, to be led by key executives managing each vertical.

The first vertical we’ve established is construction materials testing and geo­technical services, or CMT. We launched this unit by acquiring the construction materials testing line of business of Bureau Veritas. This business has offices in San Di­ego and Ventura, California; Miami and Jupiter, Florida; Philadelphia, Pennsylva­nia; and Newark, New Jersey. That was in March 2010. That unit represented about $20 million in gross revenue.

Another vertical is what we call “civil engineering-infrastructure,” a full-service engineering organization with an emphasis on infrastructure—transportation, waste­water, and utilities. Still another vertical is municipal outsourcing.

The fourth vertical we’re looking for is asset management, encompassing the management of the existing infrastructure in a public organization. In a school sys­tem, for example, it will involve managing maintenance, purchasing, etc.—the pro­gram management for the entire facility or network of facilities. That’s a field we think, like the others, is also non-cyclical. The fifth vertical is environmental services, with more of an emphasis on occupational health and safety rather than real estate.

EBJ: Where are you today in terms of building the organization?

D.W.: As I mentioned, we acquired the first vertical, CMT, in March. To establish the second vertical, civil engineering-infra­structure, we acquired Nolte Engineering in August 2010. Nolte was a 60-year-old company with a historic run rate of $70 million, located in California, Colorado, Utah, Mexico City, and Tijuana. In that deal, we acquired both Nolte Engineering and Nolte de Mexico, which together have 13 offices in the U.S. and two in Mexico.

Right now, we are actively looking for opportunities to build the other three verticals—asset management, municipal outsourcing, and environment. As you see, we’ve been growing quickly. In the com­bined verticals, we have 550 employees, and of that, about 85% are licensed pro­fessionals.

EBJ: It sounds much like the organization at Nova Group Services.

D.W.: It’s very similar to the idea I pre­sented to Stone Point Capital when we developed Nova. It’s more of a vertical or­ganization than a matrix organization. The advantage of pursuing this type of organi­zation is, we empower entrepreneurs and leaders to manage their verticals. We can grow much more quickly if our leaders are managing businesses in fields of their ex­pertise, are impassioned about their work, and have a strong client following.

One advantage of doing this is, we’re not geographically based. We’re not say­ing to a good leader, here are our five ver­ticals—manage all of them in a geographic location. What inevitably happens under those circumstances is that someone will have a strong depth of experience in one of those business areas but won’t be strong in administering the others. We’re not looking for administrators; we’re looking for peo­ple who are passionate about their practice and have a reputation with clients. That’s the profile of the COO of those verticals. Our goal is to fill these positions through the acquisitions and organic growth.

Let me circle back to the organizational structure for a moment. I’m the chairman and CEO, and under this very flat organi­zation, my direct reports are limited to sev­en or eight—the COOs of each vertical, the CFO, the head of human resources, our director of mergers and acquisitions, and general counsel.

We leave in the verticals the autonomy to grow the business. We become scalable by providing the human resources, merger and acquisition, financial, and legal sup­port as a common platform. These verti­cals will be identified through a common brand, “NV5,” which we will launch in 2011.

Obviously, a big portion of building the company will come through organic growth within the verticals. The acquisi­tion growth will come through certain pro­files. We will look for very strong leaders, people who are very well known in each of these areas. It so happens that, when we did the acquisitions of CMT and Nolte, we found those very strong leaders. So we think it’s a fairly direct plan that will allow us to grow the company very quickly. At the NV5 level, we will give all of verticals the support they need to grow.

EBJ: What’s the value proposition to the customer of such an organizational struc­ture?

D.W.: The value proposition is that we put the most experienced people forward as the face of the organization to the cus­tomer, whereas in a matrix organization, that face may not be the most experienced person in the field. Whether it’s CMT or one of the other verticals, it will be the person with the most senior expertise who is the customer’s direct contact. That’s one thing we can deliver in terms of added value.

We can also be very flexible to the cli­ents’ specific needs. We will be looking for the best ways to deliver services in the most expeditious and value-driven manner to the client.

There are two concepts here. You can be very geographical, doing everything in a region through a single group. But with our structure, we’ll be focused much more on the specific needs of the client.

EBJ: What kind of year has 2010 been for Vertical V, here in its start-up phase?

D.W: We’ve had a good year with or­ganic growth and profitability. We’ll be in the upper quartile among engineering firms in profitability and organic growth, as recognized by the Environmental Fi­nancial Consulting Group (EFCG).

In terms of specific opportunities, we have been established and licensed as a full-service engineering company in Guam. We did this through a teaming arrangement with one of the leading environmental and geotechnical firms on the island, one that’s been there for 40 years. As you may know, there will be a big military buildup, with $15 billion in planned construction as they move the Naval facility from Oki­nawa to Guam. We’ve also positioned our­selves with some of the leading transporta­tion firms in Mexico through our offices in Mexico City and Tijuana.

For 2011, we’re targeting 7% organic growth in the verticals. We have targeted for the first quarter a significant acquisi­tion to launch our municipal outsourcing vertical.

EBJ: You picked an interesting time to launch a new company. How have you managed to navigate your business plan as the economy continues to limp along. Do you think the recession is over?

D.W.: I guess I’m cautiously optimistic. I think that, in the engineering and envi­ronmental field, we have an advantage in that much of the work we do on behalf of our clients is required. We need clean water, and we still need reliable infrastruc­ture. This is work that has to be done.

We still see in 2010 continued opportunities in our municipal outsourcing vertical, where many cities and municipalities are looking for ways to balance their budgets. Much of that can come through new approaches to delivering services more effectively and at less cost.

I still see softness in new construction, and particularly privately funded new con­struction. I do see, however, that we have a number of significant projects in the trans­portation and water/wastewater groups, where money has been funded from the federal level, particularly in California, that we anticipate being released early next year.

I still have strong concerns about pri­vate-based development, or land develop­ment. We do see some good opportunities in mining in Utah, in the form of civil en­gineering services we’re doing for mining clients there. That follows a strengthening of the commodities market worldwide.

We still see in 2010 continued oppor­tunities in our municipal outsourcing ver­tical, where many cities and municipalities are looking for ways to balance their bud­gets. Much of that can come through new approaches to delivering services more ef­fectively and at less cost, and these munici­palities are looking more and more to the private sector to fill holes in the budget.

EBJ: What’s your balance between public-sector and private-sector clients? Are you where you want to be in that balance?

D.W.: We are probably 80% public and 20% private. We feel that’s a good balance, but it’s kind of a mixed blessing. If there aren’t many private projects, if you’re going to survive, you’re going to have to go to the public sector. That’s the highest percentage of public-sector business I’ve seen for my businesses over the years. We just see the mix going to the public side. That seems to be where projects are coming from.

EBJ: Has concern about climate change started to have an impact on your busi­ness in any way?

D.W.: Obviously, climate change has to be addressed, and I think it will become a concern for our clients in the traditional way. As engineers and as professional ser­vice providers, our business is driven more by regulation than by private initiatives, so when more and more of these initiatives become regulation-driven, you’ll see more growth in the opportunities for engineer­ing firms to address the problems we’re en­visioning. For example, as more buildings are required to look for LEED [Leadership in Energy and Environmental Design] standards and other types of certification, and it’s not just a matter of market ad­vantage, then you’ll see engineers become more involved. Just as in water, where regulations and standards for clean water were developed to drive a robust engineer­ing practice.

We are starting to see more of these types of regulatory drivers. Where we see it is, even at the local level, among those municipalities that are anticipating growth in coming years, some of them are putting higher fees in the tax base to address these issues down the line. It all gets back to be­ing driven by fees and regulations.

EBJ: Did your firm gain any business aris­ing from the federal economic stimulus package?

D.W.: Yes, we’re beginning to see a number of projects through this initia­tive. Examples include a large wind-energy project in Brighton, Colorado, and vari­ous Colorado transportation projects, the Caldecott Tunnel Project in Contra Costa County, California, the Miami Interna­tional Airport People Mover Project, along with a number of significant transporta­tion projects in California and Colorado.

EBJ: What do you think are the critical issues facing CEOs in the engineering in­dustry today, whether in terms of internal management or in terms of external eco­nomic and market issues?

D.W.: Looking at the market, it’s a mat­ter of adjustment. It’s not business as usual. As a CEO, we have much shorter-term ini­tiatives to face. In this environment, our clients are demanding quicker answers, and therefore we need to operate leaner. If we’re looking for long-term future growth, it has to be through these shorter-term ini­tiatives.

In our “initiative” group, which is es­sentially an R&D group, we are looking at funding those types of shorter-term projects. We would once have engaged in three- to five-year planning, and now our planning horizon is on a short-term basis.

Of course, we have to be accountable to clients. You have to deliver value and the expertise that they expect. And we have to recognize the economic situations that our clients are in. Assignments have to add value quickly, so they are on a shorter timetable. People have always talked about accountability, but we are much more fo­cused on that now, from the CEO down to the project engineers. There’s a direct line of accountability through the organi­zation. It makes us do our jobs better and more efficiently.

Business is always an adventure. We learn something new every day. I think maybe the economy has bottomed, and we’re starting to come up, but there is much more of an immediacy to how we do business. If we make an investment, we’re looking for an immediate return. Clients are looking for the same thing from us.