“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself.” - George Bernard Shaw

Murray & Roberts has made it clear that it intends to pursue the company’s growth as a global player and has identified acquisition as an effective way of redefining its position in selected  global markets.

“Major acquisitions can change the fundamental dynamics of a business by changing the breadth and scope of the services or products it provides and the paradigms along which it competes,” says Group CE Brian Bruce.

But with the benefit of hindsight, Murray & Roberts is well aware that while dramatic impact on market position is the intent and possibility of acquisition, a surprisingly large number of transactions eventually destroy shareholder value. Studies have repeatedly demonstrated that about 60% of merger and acquisition (M&A) transactions fail to achieve promised shareholder value for the acquirer.

“If every merger or acquisition makes perfect sense at its initiation, why are there so many failures?” asks Brian. The answer often lies in what happens before and after the transaction is concluded.

Managing acquisitions
Acquisitive companies have differing philosophies on the management of acquisitions. Some attempt to stamp their culture on the newly acquired assets, while others leave them alone to get on with business as usual.

“You have to adapt the other company to yourself by imposing your disciplines and systems, but you also have to adapt yourself to the other company as far as the culture is concerned. Both have to change,” says Brian.

One of the axioms of science, the stochastic behaviour of particles, states that when two particles impact, each has a permanent influence on the other irrespective of the size of each particle.

Failures in M&A are often traced to errors in approach and errors committed during the integration process which result in a clash of cultures. “When managing a merger, you can do all the business case calculations you like and whatever else you can to enhance operations and streamline costs, but if you do not understand the cultural issues, the merger will not deliver optimum value.”

As South Africa has opened up to global market forces, its corporate climate has become less chummy and homogeneous and hostile takeover bids have become more commonplace.

Globally, the engineering and construction industries are facing an M&A phase in response to global consolidation by clients, many of which are resource groups with large capital expenditure budgets. These companies have consolidated into a handful of multinational groups which conduct their procurement on a global basis as they source best-of-breed suppliers with a global reputation.

Therefore, contractors need to respond by building up a geographic critical mass in terms of capability and skills or lose their relationships with some of their most valued clients, says Norbert Jorek, executive director of Murray & Roberts.It is for this reason that Murray & Roberts engaged Cementation and Clough, positioning the Group as a world player in extraction of natural resources.

Poised for expansion
Murray & Roberts has participated in a number of mergers and acquisitions in the past, with mixed results. When Unitrans was acquired, for example, the cultural differences proved so great that no real integration ever took place.

One of the reasons put forward for the failure of some of the historic acquisitions is that they were imposed on the Group by a majority shareholder in the 1990’s sanctions-driven trend towards conglomeratisation. Assets were acquired and packaged into the Murray & Roberts ‘stable’, leaving a reluctant executive to manage them.

Now, in its current acquisition phase, the Group is taking great care in applying the lessons from the past as part of its risk management strategy.

After five years of transformation, Murray & Roberts is focused, leaner and poised for expansion. Last year the Group embarked on one of its biggest acquisitions when it acquired Cementation in a transaction that almost doubled its workforce.

“Our approach to Cementation is to join forces, pursue global best practice and both be changed in the process. If this is not the case, then the merger may not deliver optimum value,” says Brian.

This concept affects everything. “One potential consequence of a merger may be the softening of focus in one area or another. If, for example, deteriorating mining safety results in just one additional fatality, then we have to question whether the merger was a success.”

Brian likens M&A activity to a modern equivalent of the age-old human drive to expand the power of ideas or ideology into new territories.

Such expansionism does not succeed unless the acquirer has a robust and successful strategy and an aggressive urge to succeed. “Our transformation process has given us the former. We have a model, philosophy and capability and we are now developing the urge to expand globally to ensure our continued survival.”

Tailor-made transactions
Murray & Roberts does not base its acquisitions on one model alone. Each transaction is tailored to unique market circumstances. While Cementation was an outright acquisition, Clough, with which Murray & Roberts has established a strategic partnership, is more a development partnership. Expansion in the Middle East, on the other hand, involved the acquisition of a market rather than a company.

With a considerable war chest from the sale of Unitrans and balance sheet capacity, Murray & Roberts watchers are curious to know how the funds will be deployed. “Are there other acquisitions in the pipeline? Sure there will be, but not all will be obvious,” says Brian.

In today’s complex business environment, no company can afford to evade the uncomfortable questions posed by globalisation. Even if a South African company makes the strategic decision to stay at home and expand organically in its local market, global market forces still impact heavily on the domestic business environment. Some businesses are becoming the targets of foreign acquisitors who see opportunity in South Africa and into Africa.

Construction is a notoriously fragmented and over-competed industry, but that has not deterred the expansion of global contractors and scale has become an important ingredient of the most successful companies. Murray & Roberts today ranks amongst the top 50 in its global market and was one of only two companies in the final bidding in Dubai for what will eventually be the tallest building in the world.

Murray & Roberts’ ability to compete in such an environment is testimony to its progress in recent years. Whether or not it remains in this environment will depend on the group’s M&A programme, particularly its relationship with Clough.

Norbert explains: “We were looking for a partner to bring new capability to Murray & Roberts. Clough offered expertise in the arena of oil and gas and its established brand name gives us status in the Australasian markets.

“But we can also help Clough exploit new oil and gas markets which it has not been in before, such as Africa and the Middle East. We complement each other in terms of capability and geography, and this demonstrates the importance of the role of M&A as a core pillar of our expansion strategy. We are looking at potential acquisitions that can bring additional skills and capabilities to Murray & Roberts to help us penetrate new market segments, as well as expand our client relationships in existing markets,” says Norbert.

Murray & Roberts is regularly approached by merchant bankers and other intermediaries to consider acquisitions. Brian says the company does not follow this route: “Primarily we acquire projects, not businesses. When it comes to businesses, our philosophy is that if we have not thought of the acquisition ourselves, then it is unlikely to be of interest. M&A is something we do not delegate to outsiders. We devote a lot of executive time to the process and perform rigorous due diligence.”

The mobility of industries such as engineering is a factor in the Group’s favour. Detailed engineering design can be done remotely, giving low cost-base countries a global advantage. The same does not apply to construction, where scope for mobility is far lower.

However, there is already considerable consolidation under way in the engineering and construction sector worldwide. The ambitions of Murray & Roberts include strengthening its competitive and leadership positions by acquiring technical and product know-how to expand its reach further into the South African market, while leveraging its expertise into other regions of the world that are within the geographic scope of its growth ambitions.

Brian adds: “Companies must be in a position to control their own destiny, generating demand wherever they expand. Construction has a long history of simply reacting to client needs by tendering for the work they originate.

“But for the first time we are seeing a new dynamic in the marketplace where contractors are playing a greater role in the origination of projects.” Brian adds that this development will require the design of a new compact between business, society and government to prioritise society’s needs. Businesses will have to increase their scale and focus, bringing together broad-ranging capacity to meet the future demands of society.

Using a metaphor from natural history, Murray & Roberts sees itself more as a predator than a grazer. Yet there is always the risk in this fast-globalising industry that the Group falls prey to a larger predator. At the very least, Murray & Roberts’ strategy is that it would be a significant part of any such group, but would preferably remain a major global player in its own right. BY EAMONN RYAN