Business

Drake & Scull on acquisition path

The Dubai-based firm, is close to finalising the acquisition of three construction companies in the GCC.

Angela Giuffrida

March 01, 2009

Drake and Scull, a Dubai-based mechanical, engineering and plumbing firm, is negotiating to acquire three GCC construction companies as its seizes expansion opportunities in the economic downturn. The firm is also preparing to list on the Dubai Financial Market, making it the first UAE company this year to launch an initial public offering (IPO). Drake and Scull said it would buy almost half of a Saudi Arabian civil works contractor as well as acquire a mechanical, engineering and plumbing (MEP) contractor in Saudi Arabia and one in Qatar. The company said it had Dh1.1 billion (US$299 million) in available capital for the deals, which were expected to be finalised this year. "We are in the final stages and by the third quarter, we will hopefully have acquired three distinct companies," said Khaldoun Tabari, the chief executive of Drake and Scull. "They will add a substantial percentage increase to our turnover and profitability for the year 2009." Mr Tabari said the economic downturn presented an opportunity for well-capitalised construction companies to buy struggling firms to strengthen their capabilities in key areas such as infrastructure, where regional governments are continuing to spend. "It is clear that this is the right time for all of us to be looking for companies that are not totally valued," he said. "The stock price right now is not valuing companies as they were five or six months ago. So yes, companies are undervalued and some of them need cash, and we have the resources and the talent to do it." Drake and Scull has Dh5bn worth of projects and has been shielded from the slowdown in building construction because of its work in the infrastructure sector. The company is focusing on engineering work in water, power and district cooling plants, as well as airport projects. Apart from Dubai, where the Government will spend about Dh36bn this year on improving the emirate's transport and social infrastructure, opportunities are arising in other GCC countries as well as north Africa, a key market for Drake's growth plans. Earlier this month, the company won a Dh36.7m contract for a district cooling plant in Sudan, and it is bidding for the MEP contract for an airport project in Libya. "For the past seven or eight months we've been focusing on infrastructure, water and power as a business stream, rather than the civil business stream, which is a policy that's paid off," said Mr Tabari. "The future will be in infrastructure work for our company, and so it will be in Qatar, Saudi Arabia, Sudan and Libya. Very little infrastructure has been built in countries like Sudan and Libya, so this is an opportune time for companies that have good management and infrastructure to go there." To help with its expansion, Drake is looking to fill 100 jobs across the company. Recent redundancies in the construction industry are making it easier for the company to find suitably qualified employees. "We believe this is the opportune time for us to get the right talent," said Mr Tabari. Drake filed all documents for the IPO process to the Emirates Securities and Commodities Authority (ESCA) on Nov 16 and expected approval "any time now", he said. Drake will be the first MEP company in the UAE to publicly list. agiuffrida@thenational.ae

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Building boom turning to bust as Turkey's economy slows

Deep in a provincial region of northwestern Turkey, it looks like a mirage - hundreds of luxury houses built in neat rows, their pointed towers somewhere between French chateau and Disney castle.

Meant to provide luxurious accommodations for foreign buyers, the houses are however standing empty in what is anything but a fairytale for their investors.

The ambitious development has been hit by regional turmoil as well as the slump in the Turkish construction industry - a key sector - as the country's economy heads towards what could be a hard landing in an intensifying downturn.

After a long period of solid growth, Turkey's economy contracted 1.1 per cent in the third quarter, and many economists expect it will enter into recession this year.

The country has been hit by high inflation and a currency crisis in August. The lira lost 28 per cent of its value against the dollar in 2018 and markets are still unconvinced by the readiness of the government under President Recep Tayyip Erdogan to tackle underlying economic issues.

The villas close to the town centre of Mudurnu in the Bolu region are intended to resemble European architecture and are part of the Sarot Group's Burj Al Babas project.

But the development of 732 villas and a shopping centre - which began in 2014 - is now in limbo as Sarot Group has sought bankruptcy protection.

It is one of hundreds of Turkish companies that have done so as they seek cover from creditors and to restructure their debts.

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Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Sector: Sustainability
Total funding: Self funded
Number of employees: 4
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Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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