THE developer Lend Lease has capped off one of its busiest years in a decade with the $960 million purchase of Valemus Australia, the local arm of the German constructor Bilfinger Berger.
The deal follows the aborted $1.5 billion float of Valemus in July.
Upon completion, it will make Lend Lease the No. 2 engineering contractor in the country behind Leighton and the No. 1 in non-residential contracting.
Lend Lease has been circling Valemus since Bilfinger Berger first announced in April that it wanted to sell the local construction operations.
Lend Lease has won approval for its Barangaroo development in Sydney and yesterday was selected by Melton Shire Council in Victoria as preferred developer for the Toolern master-planned community.
The deals were well received by investors. Lend Lease shares closed up 49?, or 5.93 per cent, at $8.75.
Under the Bilfinger deal, Lend Lease will acquire the Australian construction and civil engineering businesses of Baulderstone, Abigroup and Conneq for $960 million.
The chief executive of Lend Lease, Steve McCann, declined to confirm whether the company would sell any of the assets, such as Conneq. He said there would be another update in February when interim results were announced.
The deal will be financed by $735 million of Lend Lease's existing cash and debt facilities and another $225 million of new debt.
Mr McCann said he planned to keep the Baulderstone and Abigroup businesses operating under their own names. He declined to give any earnings forecasts for Lend Lease after the acquisition but estimated the deal would be about 15 per cent accretive to future revenue.
"This is an exciting transaction for Lend Lease as it will deliver scale and broaden the group's construction services capability in the Australian market," Mr McCann said.
"We have about $5 billion of revenue in work in progress for our development pipeline and that will be enhanced by the new deal."
Brokers said the deal would be positive for the group's future earnings, although it would give the group increased exposure to the volatile global construction sector.
John Freedman, the head of real estate research at UBS, said the large amount of retained cash within Valemus would act as a deliberate buffer against possible project risk, which would increase after this transaction.
"While this increases construction earnings from 25 per cent to 43 per cent [of earnings], it takes Lend Lease into the strongly growing engineering construction space, an area we have believed Lend Lease should have entered a long time ago," Mr Freedman said.
"Australian earnings increase [by] 10 per cent, to 72 per cent of Lend Lease's operations."
Frequently Asked Questions about this Article…
What did Lend Lease agree to buy in the Valemus acquisition?
Lend Lease agreed to buy Valemus Australia, the local arm of German constructor Bilfinger Berger, in a A$960 million deal that follows an aborted A$1.5 billion float of Valemus in July.
Which businesses are included in Lend Lease's purchase of Valemus?
The acquisition covers the Australian construction and civil engineering businesses of Baulderstone, Abigroup and Conneq, which are being bought from Bilfinger Berger as part of the Valemus deal.
How will Lend Lease finance the A$960 million purchase of Valemus?
Lend Lease said the deal will be financed with A$735 million from existing cash and debt facilities and a further A$225 million of new debt.
How did investors react to the Valemus takeover news?
Investors reacted positively: Lend Lease shares closed up 5.93% (A$0.??) at A$8.75 on the day the deal was announced, reflecting strong market support for the acquisition.
Will Lend Lease keep the acquired businesses operating under their current names?
Lend Lease’s CEO Steve McCann said he planned to keep the Baulderstone and Abigroup businesses operating under their own names, but he declined to confirm whether any assets such as Conneq would be sold.
What impact will the Valemus acquisition have on Lend Lease's revenue and earnings?
Steve McCann estimated the deal would be about 15% accretive to future revenue. Brokers said the acquisition should be positive for future earnings but will increase the group's exposure to the volatile global construction sector.
How does the Valemus deal change Lend Lease's market position in Australia?
On completion the purchase will make Lend Lease the No. 2 engineering contractor in Australia behind Leighton and the No. 1 contractor in non-residential contracting, expanding the group's presence in engineering construction.
Are there risk mitigants in the Valemus purchase and how will this affect Lend Lease's Australian earnings mix?
UBS’s John Freedman noted that a large amount of retained cash within Valemus would act as a buffer against project risk. He also said the deal raises construction earnings from about 25% to 43% of total earnings and increases Australian earnings by roughly 10 percentage points to 72% of Lend Lease's operations.
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