New Zealand   |   3 months ago

Fletcher Building makes inroads

Fletcher Building has confirmed it will buy construction firm Higgins in a $315 million deal, and announced a restructure of its overall business. While rumours of the impending sale have been doing the rounds for months, both parties have previously kept mum. The NZX-listed Fletcher posted a notice to the stock market on Tuesday morning, saying the deal was expected to be completed around June 30. It said it would take over Higgins Group Holdings and related assets, including a Fiji contracting business. READ MORE: Fletcher Building looking to expand through acquisition Higgins has more than 1200 staff, and is the third largest player in the road construction and maintenance sector. Its owners, the Manawatu-based Higgins family, consistently appear on the National Business Review's rich list, with wealth recently estimated at $150m. Fletcher Building chief executive officer Mark Adamson said Higgins was a logical choice, as the two companies had a history of working together for more than 25 years. "We have signalled for some time our desire to extend our activities into the road construction and maintenance sector, where we have identified significant opportunity." Higgins generated $391m of revenue and a $35m operating profit in the 2015 financial year, which is forecast to hit $40m in 2016. Fletcher said it expected the transaction, funded from existing cash and debt facilities, to increase earnings a share from its first year. The deal will see the company acquire asphalt and bitumen plants, 16 operational quarries, and other related businesses including traffic sign manufacturing. Higgins' ready-mix concrete and property businesses are not included. Adamson said the Fiji arm of the Higgins business would complement Fletcher's existing activities in the area. "We will be looking to extend the sphere of operations beyond Fiji into other South Pacific territories over the next few years." The agreement is conditional on a number of factors including Overseas Investment Office and Commerce Commission consent. Hamilton Hindin Greene adviser Grant Davies said the deal was not huge relative to Fletcher's scale, and would not stretch its balance sheet. "It's a $315m acquisition from a $5 billion company." Davies said the market was cautiously optimistic about the news, with Fletcher's share price up 1.4 per cent to $7.10. "Hopefully they've learned the lesson from a few of the acquisitions they've made recently, and are focusing on the right areas." Fletcher also announced changes to its divisional structure and leadership team, to be led by newly appointed chief transformation officer Lee Finney. The company will be organised in five divisions; building products, international, distribution, residential and land development, and construction. Adamson said the new structure reflected changes to the portfolio, with a number of businesses divested over the past two years. The company's focus was on investing where it saw the strongest opportunity to further grow profits, while gaining operating efficiencies from grouping similar activities together. - Stuff

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