Services, materials to drive European construction M&A

AMSTERDAM/FRANKFURT Wed Feb 2, 2011 6:51am EST

Related Topics

AMSTERDAM/FRANKFURT (Reuters) - As more new homes get built and refurbished, industries increase investment and governments cut spending, construction services and materials firms across Europe are stepping up efforts to consolidate.

New home construction as well as residential and industrial renovation are set to pick up in Europe this year, according to market research firm Euroconstruct, with individuals and businesses having more to spend on initiatives such as energy efficiency and insulation.

Less spending on infrastructure, due to Europe's debt woes, and more private industrial investment, driven by the modest economic recovery, is set to spur more construction groups to move to more profitable activities, such as facilities management and industrial maintenance.

"Construction markets in Europe have been consolidated whereas infrastructure-related services have not, offering opportunities for players such as Vinci, Bilfinger Berger and Balfour Beatty," Exane BNP Paribas Nicolas Mora said.

Most of these deals are likely to involve bolt-on acquisitions and may not feature the high drama and complexity of Spanish builder ACS's offer for German peer Hochtief, which was motivated by ACS seeking debt relief.

But debt considerations will certainly be part of the decisions of European cement makers and other building material suppliers which are considering divestments to raise cash and focus on more competitive areas of their business.

NOT ALL PRICED IN

"I think there is plenty of potential for M&A in the building materials sector which one has to watch carefully as it has not been all priced in (in the shares)," said Peter Braendle, a fund manager at Swisscanto Asset Management.

Braendle said he holds stakes in Saint-Gobain, Lafarge and CRH, all of which are the target of M&A speculation. Some need the cash to fend off pricing pressure and expand their production base in emerging markets.

As a result, the number of M&A deals, which started picking up in 2010 as companies tried to adapt, is set to rise faster, accompanied by a rise in volumes, as a revived equities market makes it easier for companies to raise cash.

An example of the impact of bid speculation on a company's stock was provided in January by Britain's Mouchel.

Its shares have risen 30 percent in the last month as Balfour Beatty, Capita and Carillion are believed to be looking at the services group following an increased 172 million pound bid by construction group Costain.

"Consolidation is taking place across Europe's construction services industry but there are four companies at the center of it: Imtech, Bilfinger Berger, YIT and Vinci's Cegelec," said Rabo Securities analyst Hans Slob.

HIGHLY ACQUISITIVE

Dutch-based Imtech, Germany's Bilfinger and Finland's YIT have all been highly acquisitive, snubbing construction and amassing services portfolios that could eventually lead to a deal surpassing Vinci's 1.18 billion euro acquisition of Qatari Diar's electrical engineering firm Cegelec in 2009.

"We may see some interest from the Middle East or China, where there is currently a lot of liquidity in the sector," said M&A lawyer Christoph Schalast, who is also a professor at the Frankfurt School of Finance.

The next major deal to watch in Europe is the sale of France's Spie, Europe's third-largest electrical services operator, by PAI Partners. The private equity firm, which bought Spie for an equity value of 1.04 billion euros in 2006, is expected to seek an exit this year.

In the materials space, Saint-Gobain, the world's largest building materials group, is preparing a sale of its glass packaging unit Verallia and considering acquisition to grow in emerging markets.

The European recovery is seen as also boosting the acquisition activities of building materials group CRH, which has relied on M&A for growth, having spent 1.2 billion euros on average every year on deals in the last decade.

"CRH has scaled back M&A in the last two years due to the economic uncertainty but this could be about to change," said Goodbody analyst Robert Eason, pointing out the Irish company is seen as one of the possible bidders for Anglo American's UK tarmac business, expected to fetch around $2.7 billion.

(Editing by David Holmes)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.