Has a year of financial turmoil killed off the merger and acquisition market for contractors? Not yet, at least when foreign investors are following carefully set strategies. OHL Group of Spain recently acquired control of its third Florida construction firm, Miami-based building contractor Arellano Construction, and OHL agreed to pay $25 million now and at least another $11.5 million, depending on the company’s performance. In exchange OHL received for 70% of Arellano’s stock. In 2006, it purchased Community Asphalt, a civil contractor based in Hialeah, and in 2007 OHL bought commercial building contractor The Tower Group, which is based Davie. ENR correspondent Debra Wood spoke with OHL USA President Lauro Bravar about the “biorhythm” of health care, the financial turmoil and OHL’s plans for U.S. expansion.
Arellano Construction is a preferred contractor for HCA of Nashville and has worked on more than 65 HCA projects in Florida and South Carolina. Is that why you like the company?
We wanted to consolidate our position in Florida, and we were looking for a specific positioning in the health-care sector, in which we are very strong worldwide. We found in Arellano the perfect partner.
Why health care and why in 2008?
We believe it’s a very stable segment in construction activity, because it doesn’t follow the cycles of housing development or investment in the public sector. It has a different biorhythm that is much more stable.
Right now, with this big financial crisis, you see very little private development. Nonetheless, there are still excellent opportunities in the health-care sector. The specific opportunity we had with Arellano is we had a medium-sized company in the order of $100 million [in annual contracts], which was growing very fast, but now had reached the point it needed a larger, multinational firm to gain speed in growth. There is a market value that will be easily transformed into something tangible in the terms of additional work and larger jobs in Florida and around the U.S. through this acquisition.
Are you planning to expand beyond Florida?
The idea to expand in the U.S., of course, could well be through additional acquisition in the following months or years. We are going to develop their [Tower Group and Arellano] natural markets in Florida. ... We believe with the help of OHL, Arellano can expand in other areas of Florida, like the west coast or the northern part. And, we are thinking of other states, because some of our clients are countrywide. We have a good reputation with them and maybe will take on some work nationally. You must select very carefully the projects which we will get involved, based on the capacity of providing good service and maintaining your reputation with your client. Considering that, we do have ambitions to move forward in the United States.
The U.S. in the middle of its worst financial crisis since the 1930s. Do you consider this a good time to be investing and why?
I think it’s to some extent the best time ever. Raising financing, this week, may be not the best time in the world. But better times will come. Financial restrictions ... might mean for us options to provide financing. We are already working in and qualified for two big hospital [projects] in Montreal, Canada, and expect next month to get the RFP and start working on the proposals. Those hospitals include financing, because they are concessions. It’s an example of a scheme that could be applied in the states whenever there is a restriction of budgets but the need for infrastructure.
OHL is already involved with partnerships on road projects, such as U.S. 1 in Miami, right?
U.S. Route 1 in Miami is a financed project, not a concession. The financing is shorter, just five years. You know when you will get paid and the quantities. Purely speaking, it’s not a public-private partnership. [But bringing in money from outside], the result is the same [as with a PPP]. You obtain infrastructure ahead of the money you are able to spend for it.
In what sectors is OHL strong internationally?
We have tremendous experience in infrastructure, meaning roads, bridges and tunnels. We’ve been involved in a number of high-speed railways in Spain and Turkey. We have a company, specializing in railroads. All those type of projects are common for us.
Any other segments of the U.S. market you are looking at?
Outside Florida, big developments are proceeding in New York and New Jersey, with tunnels under the Hudson River. In general, with these large projects, a large company, like ours, can add some specific experience and the financial, bonding capacity and are what we do best.
How do the three Florida acquisitions affect each other?
There is practically no overlap between Tower and Arellano, and it is our intention to maintain the management of the two companies completely separate and independent. The overlap is geographical, but there are no common customers and no intention of merging the companies. The main customer of Community [Asphalt] is FDOT [the Florida Department of Transportation]. Tower got a [FDOT Turnpike] project last year in Pompano Beach. It’s an [$8.4] million project compared to the $ million Community gets every year from FDOT.