Acquisitions make Carmel company nation’s largest underground utility locator

A former Indianapolis Water executive who spent the last six years helping the United Nations find food for the starving
has returned and assembled the country's largest underground utility locator company.

Michael Stayton and other investors, led by New York private equity firm Kohlberg & Co., paid $85 million on March 31
to buy Carmel-based SM&P Utility Resources from St. Louis gas utility company Laclede Group Inc.

Also acquired, for an undisclosed amount, was Philadelphia-based Central Locating Service Ltd. Its parent, Asplundh Tree
Expert Co., which clears tree limbs from utility lines, will hold a stake in U.S. Infrastructure.

SM&P and CLS were the second- and third-largest utility-line locating firms, respectively.

They're now under the umbrella of U.S. Infrastructure Corp., a new company based at SM&P's 13085 Hamilton Crossing
headquarters in Carmel. About 80 of SM&P's 2,500 employees in nine states work there. About 25 back-office positions
will be moved to Carmel from Central Locating's main office in Philadelphia, Stayton said.

All told, U.S. Infrastructure has sales of $300 million and employs 3,500 people in 21 states. And it's angling to grow
beyond SM&P's and CLS' utility-line locating specialty. Utilities continue to outsource other functions performed
by in-house employees, who are paid labor-union-scale wages and benefits.

"Buying a pipeline construction company," for example, "is not outside the realm of possibilities," Stayton
said of U.S. Infrastructure.

The deal is still rumbling through the underground utility industry.

"We are witnessing a consolidation on the provider side of the equation and Indianapolis is this consolidation's
epicenter," Mike Parilac, publisher of Underground Focus, wrote in the trade magazine's latest issue.

Back to the future

For Stayton, it's a reunion with SM&P.

He'll be its CEO, a role he held at SM&P in the late 1990s when it was owned by IWC Resources Corp., the former publicly
traded parent of Indianapolis Water.

With Stayton at the helm, SM&P revenue grew to $150 million from $40 million, a 25-percent annual growth rate over six
years.

From 1999 to 2001, he was senior vice president of Energy USA Commercial Group, a non-regulated business into which Merrillville-based
NiSource Inc. folded SM&P after it bought IWC Resources in 1999.

But not long after, NiSource had Stayton looking for a buyer for SM&P. He even tried to arrange a management buyout,
with the help of Kohlberg. Ultimately, Laclede was able to pony up more cash–about $24 million.

Stayton, meanwhile, followed James Morris–former chairman of IWC–to the United Nations World Food Programme, which Morris
headed. Stayton would serve as chief of staff and chief operating officer of the program, the world's largest international
humanitarian agency. But before heading to Rome, he told Kohlberg, "I'll be back in five or six years."

When his United Nations service expired last fall, he resumed his search for companies to buy. He was astounded that SM&P
was available. Laclede, which was changing its focus, had decided to unload it.

"We had no idea we'd be going after the same company we did before," he said.

Growth potential

SM&P is a considerably larger company than it was six years ago. Its footprint extends through the middle of the country,
from Texas in the south to Minnesota in the north.

It barely overlaps with its new partner, CLS, which is focused on the East Coast and a few Western states.

SM&P was formed in the 1970s in Carmel by brothers Steve, Mike and Pat Baker (thus the SM&P name). Initially, the
firm dug trenches and dropped in cable for Indiana Bell Telephone Co., now AT&T.

Around 1979, the Bakers started locating lines for Indiana Bell–detection equipment in one hand and a can of spray paint
in the other. They sold to IWC in 1993.

"The location business historically has been a very fragmented business," Stayton said. "But utilities have
been constantly outsourcing things."

Now, about half the $1.5 billion market for locating services in the United States is coming from utilities and others that
no longer do it in-house. By some estimates, the business has been growing at a compound annual rate of about 7 percent over
the last dozen years.

It's benefited in recent years from increased public awareness of the need for accurate locating to prevent costly line
breaks from excavation. That culminated recently with the introduction of the nationwide "811" dialing service that
dispatches locating services, said Christopher Koch, of Buffalo, Minn.-based Hance Utility Services and a board member of
the National Utility Locating Contractors Association.

But while that's increased work volume, the growing awareness also has increased liability.

"You have to have the company that has the financial strength to handle the risk," said Stayton, whose new company
will conduct 30 million "locates" this year.

Indeed, with increased visibility, "more and more parties pursue legal action following utility damages and outages,"
Koch said.

"The liability side of the equation is a challenge better met by larger companies whose financial stability … allows
them to weather legal judgments that could put 'mom and pop' -type operations out of business permanently." Larger
operations are able to self-insure in amounts that wouldn't be feasible for small firms, he said.

Being able to offer different kinds of services also will be key as the 400-plus utility companies in U.S. Infrastructure's
territory look to outsource other kinds of work, such as laying cable and pipe. That used to be in-house work for companies
such as IWC Resources, back when it owned Miller Pipeline, which it later sold.

Risks in down economy

But is this a good time to create a utility services giant, with the economy slowing?

Stayton said bankers were concerned about slowing housing starts. But that's only a small part of U.S. Infrastructure's
business, he said. Rather, he's looking for opportunities stemming from infrastructure spending, such as for sewers and
roads.

Capital spending on U.S. water and wastewater infrastructure alone totaled $24.6 billion in 2005 and is projected to top
$29 billion this year, according to Santa Barbara, Calif.-based Commerce Capital Group.

Infrastructure spending "doesn't slow down" necessarily during the economic doldrums, Stayton said. He also
noted that telecommunications companies continue to add capacity.

As for further locating-industry consolidation, Koch said he doesn't necessarily see much more on the horizon. He said
smaller locating companies have been partnering with municipalities, school corporations and utility co-ops. Those customers
often prefer more personal attention "even if it means paying a premium" for the service.