GRINAKER-LTA ACQUIRER LOOKS TO BUILD TIER-ONE, BLACK-OWNED CONTRACTOR

The Laula Consortium, which is acquiring
construction group Grinaker-LTA from Aveng for R100-million, says its goal is
to transform the struggling contractor into a profitable tier-one, black-owned
group, while preserving the technical and human competence developed within the
company over the past century.

The consortium’s owners include Oteo Investment
Holdings Proprietary Limited (61%) Manzini Ventures Proprietary Limited (17%)
and Upsize Trading Proprietary Limited (12%), with the balance of the shares
set aside for senior executives and managers.

A new CEO and FD will be appointed once the deal,
which remains subject to approval by the competition authorities, is
consummated. The current expectation is that all outstanding conditions should
be met during the fourth quarter of 2019.

Through the transaction, announced by Aveng on
August 8, the Laula Consortium will acquire Grinaker-LTA (GLTA)
Construction, which comprises GLTA Buildings Inland, GLTA Buildings
South, GLTA Buildings KwaZulu-Natal, GLTA Civil
Engineering, GLTA Plant and Yard and the GLTA Training School. The
company currently employs about 4 000 people.

The Grinaker-LTA brand will be retained, but the
company’s head office and the training academy will be relocated from its
current location in Jet Park. New and smaller, premises are in the process of
being secured

Oteo Investment Holdings CEO Mlu Manci, who will assume the role of
Grinaker-LTA executive chairperson post-transaction, stresses that there is no
intention to chase order-book growth.

Aveng Grinaker LTA has, at points, been a
R7-billion-a-year revenue business. Instead, the contractor is to be sustained
as a R3- to 4-billion-a-year  revenue business for the foreseeable future,
while prioritising margin expansion. This will be achieved, Manci says, through
careful selection of clients who appreciate the global quality and safety standards
of Grinaker LTA and who understand and honour contract agreements.

The consortium will also seek to leverage its
private sector developer network, while taking an active role in supporting the
development of technical contracting capacity in the public sector.

The new owners plan to add annuity revenue to
the Grinaker-LTA business,  through taking on more operations and
maintenance contracts, among other initiatives. The consortium views
private–public partnership as an area that presents opportunities, especially
in the independent power producer sector.

The Laula Consortium’s focus on annuity revenues
could also result in a further transaction involving Aveng Capital, but Manci
stresses that discussions are still at an exploratory stage.

The consortium’s focus on profit ahead of scale has
already informed the nature of the post-transaction contracts over which
Grinaker-LTA will assume full control – that order backlog stands at about
R2-billion.

The balance of the orders, including the Leonardo
high-rise under construction in the Sandton central business district, will be
completed through a service-level agreement with Aveng, which will continue to
carry the construction and performance-bond risks.

“We have no intention of growing too fast,” Manci says.
“Our main aim is to use the foundations built at Grinaker-LTA over the past 117
years to create a sustainable construction business that will endure for
another 100 years.”

Manci, who previously played leadership roles at
both the South African Chamber of Commerce and Industry and Business Unity
South Africa, says he and his partners – Bruce Zungu of Manzini Ventures and Ray Cele of Upsize Trading – are
under no illusions about the difficulties afflicting the domestic construction
industry.

Nevertheless, the Laula Consortium is optimistic
that the streamlined Grinaker-LTA can be returned to sustainable profitability,
despite the difficult trading conditions, and that the South African
construction market will eventually recover.

“We expect the difficult times to persist for at
least two more years,” Manci says. However, he expects that the clean-up of
State-owned companies, together with the creation of a national infrastructure
fund to support public-private partnerships will eventually help to improve
prospects for the sector.

Manci believes that an “honest conversation” is
required between the industry and government regarding the current unfair
distribution of risks, which is resulting in losses for contractors across many
public infrastructure projects. He is also concerned about construction sites being
disrupted by acts of violence, vandalism and intimidation.

Earlier this year, the Aveng Strabag Joint Venture,
which was appointed by the South African National Roads Agency to build the
R1.63-billion Mtentu bridge in the Eastern Cape, declared force majeure and withdrew
from the contract, after the contract site was violently disrupted.

Following the withdrawal, Strabag said it had never before experienced such violence, despite having worked in 80 countries globally, including Afghanistan and Iraq.https://www.engineeringnews.co.za/article/grinaker-lta-acquirer-looks-to-build-tier-one-black-owned-contractor-2019-08-26