CEOs Say Merger Mania Won't End Soon
Executives noted a continuing trend in mergers and acquisitions that fuel growth and expand markets and geographies. Even noting more than 40 acquisitions each in their respective corporate histories, chiefs of Parsons Corp. and Australia's Cardno Ltd. said the buying spree isnt over.
Parsons CEO Charles Harrington noted the firm's low debt "and plenty of cash on the balance sheet" that covered its $350-million purchase of cyber-security firm SPARTA Inc. last year. He says Parsons may "buy back companies we spun off."
Cardno President Michael Renshaw said the firm's M&A strategy is based on "not being beholden to a single market line or economy." He said the firm wants its acquisition targets to have a financial stake in the deal and to keep it for 18 months "to show it's not a quick cash-out." He admitted, however, that the firm's recent purchase of ATC Associates from its private equity owner broke that rule.
Hisham Mahmoud, AMEC's president of environment and infrastructure, said the firm focuses on "sustainable growth. There is such a thing as bad growth." He said that Atlanta-based MACTEC, acquired last year, was integrated into its parent in six months. "There was some pain and suffering, but it was better to integrate fast," Mahmoud said.
Len Rodman, CEO of Black & Veatch, said the firm only acquires companies with which it has worked on projects. "We need to understand how people act under stress," he said. Rodman also emphasized that dealmaking rationale must be clear. "You have to be good at organic growth, too, or M&A doesn't work under any scenario."
South America—Billions in Infrastructure Planned But Most Outsiders Will Struggle
Infrastructure is moving up as a construction priority in South America, with investment needs of up to one-half trillion annually, said José Canedo-Arguelles, chief operating officer of Gerens-Hill, a Hill International unit working there. Norman Anderson, CEO of consultant CG/LA, noted plans to invest almost $40 billion in urban mass transit. Energy project investment could exceed $600 million in the next decade, said Joao C. Mello, president of Brazil-based engineer Andrade & Canellas.
But unlike the Middle East, South American countries may not be "embracing value [that is] added from foreign firms," Canedo-Arguelles said. Participants said Chile, Peru and Colombia are smaller markets but potentially easier for foreigners to penetrate.
Despite Brazil's compelling energy market, Mello warned that "newcomers would find it difficult to deal with Petrobras," Brazil's state-owned oil company, which requires 80% local content. Entry barriers also include tougher environmental permits, a lack of local technical staff, high turnover and the cost of new production supply. Outsiders also can expect high construction inflation and annual engineer compensation of up to $300,000.
Middle East-N. Africa—Infrastructure Is the Priority
Despite the Arab Spring civil uprising that has slowed down construction projects—particularly in Egypt— the Middle East and North Africa (MENA) region continues to boom, expert panelists said. "There is a huge demand for infrastructure work throughout this region," noted Sadek Owainati, president of MENA projects and chairman of the World Green Building Council MENA Network.
MENA nations are concentrating their construction dollars on roads, bridges, ports, water supplies, airports and energy expansions. Gulf states alone are expected to spend $286 billion through 2016, with Saudi Arabia leading, at $120 billion, and Iraq following close behind, at $109 billion.
"That is $35 billion every year that needs to be spent [in Iraq], and they really don't know how to spend it, so there are plenty of opportunities for private-sector development," Owainati said. Meanwhile, housing needs are high, with the region looking to build roughly seven million units, nearly half of which are in war-torn Iraq.
"There are opportunities," Owainati said, "but there are serious challenges as well."