M&R expands in US market with R423m deal

Engineering and construction group Murray & Roberts (M&R) has acquired private, fourth-generation multi-trade engineering and contracting business JJ White Incorporated in the United States for a maximum of $28.25 million (around R423 million).

The acquisition was made through M&R’s subsidiary Clough, the brand name for M&R’s energy, resources and infrastructure platform (ERI).

M&R said on Tuesday the transaction is being undertaken as part of the group’s strategy to diversify and expand the service offering of its ERI business platform in North America.

It said this is similar to its recent market sector diversification in the Asia-Pacific region, which has seen significant order book growth over the past three years.

The collapse of the oil price in November 2014 resulted in Clough’s contribution to M&R progressively declining from a R1 billion profit in 2013/2014 to a R450 million loss in M&R’s 2020 financial year.

To address this, M&R broadened the focus of its ERI platform beyond the oil and gas sector to include the broader energy sector, resources sector, and specialised infrastructure.

Order book

Clough in September reported that it had a record order book of R37 billion at end-June this year, which contributed towards M&R ending the year with an all-time-high order book of R60.7 billion for this period.

M&R CEO Henry Laas said in a presentation at the time that Clough’s order book gave some sense of the success the group has achieved over time in implementing its strategy, which is currently bearing fruit and starting to manifest in this order book that it has built up over a period of time.

He added that M&R is extremely excited about the R60.7 billion group order book, which provides the group with the opportunity to experience strong revenue growth and earnings growth in its 2022 financial year and beyond.

Acquisition

Laas confirmed at the time that M&R was pursuing an acquisition opportunity in the US with the objective of diversifying its service offering in the US so that it mirrors what the platform is doing in Australia in the Asia-Pacific region.

M&R said on Tuesday the JJ White acquisition builds an immediate robust entry into new territories and new markets and will leverage JJ White’s existing customer base to expand Clough’s engineering, procurement and construction services and footprint across the US.

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“This investment presents significant growth potential and opportunity for market share expansion and is expected to provide strong returns,” it said.

M&R said JJ White is headquartered in Philadelphia in Pennsylvania, and is licensed to deliver its services in 22 states.

It said JJ White specialises in industrial maintenance and related construction services that cover a full range of mechanical and electrical disciplines, and has an in-house fabrication facility, with its capability including the design and fabrication of American Petroleum Institute (API) 650 oil storage tanks.

M&R said implementation of the transaction is subject to standard closing documentation requirements, with the fulfilment of the conditions precedent in the transaction required before the end of October.

It added that JJ White has achieved average earnings before interest, tax, depreciation and amortisation of $5.1 million, on a normalised basis and adjusted for one-off non-recurring items, over the last four financial years to end-December 2020, which was attributable to the net assets being acquired.

Analyst’s take

Rowan Goeller, an analyst at Chronux Research, said M&R has been looking for acquisitions in North America of engineering type of businesses, particularly linked to the oil and gas industry.

Goeller said the acquisition of JJ White is in line with this strategy, which has been to grow through acquisition in North America.

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He said M&R’s business in North America is growing reasonably quickly from a very small base but the ERI platform is still very much Australasia-based through Clough.

But Goeller said M&R’s North American business is now starting to become meaningful in the overall business and the group sees a lot of opportunities in this market, especially in oil and gas and overall engineering type business.

Shares in M&R dropped by 0.07% on Tuesday to close at R13.73.

Listen to Henry Laas speak about the deal in this SAFM Market update interview: