Sharechat Logo

Downer fills gap in NZ 'vertical' construction with Hawkins acquisition

Wednesday 8th March 2017

Text too small?

Downer EDI, the Australian-based infrastructure and mining firm, will become New Zealand's No. 2 'vertical' construction company after Fletcher Building with the acquisition of Hawkins from the McConnell family.

The company said today it has agreed to acquire Hawkins with a settlement date of March 31 but didn't give a price. Hawkins is understood to have annual sales of $600 million to $700 million and the sale price was likely in a range of A$50 million to AS$100 million. The deal doesn't include any of Hawkins' offshore operations, which have included a geothermal development in Indonesia and interests in Australia, Papua New Guinea and the South Pacific.

"We have a large range of capabilities in New Zealand. This adds vertical construction," said Michael Sharp, Downer's head of corporate affairs, referring to construction of buildings rather than drainage or roading infrastructure, 

Downer's customers in New Zealand include the New Zealand Transport Agency and most local authorities. Hawkins currently has contracts including the SH16 Lincoln-to-Westgate upgrade, the construction of Auckland’s Park Hyatt Hotel, the Pier B extension at Auckland International Airport, Wellington International Airport’s Rongotai control tower, Wellington City Council’s Arlington housing project, the Christchurch Town Hall, and the Avon River Precinct in Christchurch.

Sharp said Hawkins will benefit from Downer's balance sheet strength. It intends to maintain the Hawkins brand and keep on its experienced managers, he said. The deal would add to earnings in Downer's first year of ownership, it said.

An issue for construction firms is the requirement for bonding - setting aside funds to ensure projects can be completed, which to date has fallen to the existing owners of Hawkins.

Downer's first-half results, released on Feb. 2, showed the company had on-balance sheet gearing of just 1 percent and net debt of A$22 million. Its operating cash flow was A$244 million and work in hand rose 13 percent in the first half to A$21.1 billion. Last month Fletcher said it has backlog of construction work awarded but not completed of $2.7 billion. 

Its A$3.6 billion of first-half revenue was spread between rail, transport services, utility services, mining, electrical construction and maintenance, and technology and communications services.

Downer chief executive Grant Fenn said the acquisition would allow Downer to benefit from ongoing construction activity in New Zealand. "It is estimated that over $50 billion will be invested in non-residential construction in New Zealand over the next five years," he said.

The acquisition would follow Fletcher Building's acquisition of rival construction company Higgins Group Holdings last year for $303 million. That deal was approved by the Commerce Commission after Fletcher dropped the Horokiwi Quarries business from its application to reduce its dominance in the aggregates market.

Horokiwi Quarries is a 50-50 joint venture between Higgins and privately held construction firm Fulton Hogan. In January, Downer EDI said its New Zealand boss Cos Broyn was leaving to take over the reins at Fulton Hogan although he faces a nine-month restraint period before he can become Fulton Hogan chief executive.

John McConnell told the NZ Herald in 2015 that the family was forced to sell its interest in construction firm McConnell Dowell in the wake of the 1987 sharemarket crash and the family subsequently started its own business, McConnell Group. In 1996 the McConnell family invested in 50 percent of the Hawkins business and by 2002 had purchased 100 percent shareholding, according to the Hawkins website.

Downer shares last traded at A$7.21 on the ASX and have soared 96 percent in the past 12 months.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Further Contract Win Strengthens Scott Technology’s Position In Mining Sector
China’s Assertiveness Is Becoming a Problem for Its Friends, Too
New Talisman - Chairman’s Address to AGM 2020 August 6, 2020
T&G reports its 2020 Interim Results
Gold price hits $2,000 for first time on Covid
TruScreen strengthens its market presence in central and eastern Europe
Refining NZ announces non-cash impairment
Ryman Healthcare COVID-19 update Victoria
Talisman Quarterly Activities Report to 30 June 2020
General Capital gives notice of Annual Meeting

IRG See IRG research reports