Skanska AB (SKAB), the Nordic region’s biggest builder, is getting closer to bolstering its U.S. presence by buying a rival with revenue of as much as $1 billion to win infrastructure contracts for roads and railways.
Adding a business in Texas or somewhere in the Midwest region like Chicago would be ideal, Mike McNally, head of the Swedish company’s operation in the U.S., said in an interview. Both private and publicly listed companies make viable targets, and approaches have already been made, he said.
“We’ve got the fishing lines out and we have some that might be on the hook,” McNally said yesterday at Skanska’s headquarters in Stockholm.
While the U.S. is Skanska’s largest market, accounting for about 27 percent of revenue, its last acquisition there was a Californian roadbuilder a decade ago. Skanska is among European builders that have entered the U.S., with mixed success. Hochtief AG (HOT) is a major player with its Turner Corp. subsidiary while Dutch builder Royal BAM Groep NV sold its bridge builder Flatiron in 2007 and Bilfinger Berger SE sold its remaining construction activities there this year.
Skanska does little infrastructure construction outside New York, Virginia and southern California, and McNally said he’s seeking to broaden its nationwide workload beyond just managing building projects such as hospitals. Companies targeted by Skanska are likely to have revenue of $500 million to $700 million, and they could even touch $1 billion, he added.
To help plant its flag in the country, Skanska is also pursuing a marquee contract to build Apple Inc. (AAPL)’s second campus in Cupertino, California to house 13,000 employees.
Throwing the Net Wide
Skanska is the eighth biggest construction firm in the U.S., according to Engineering News-Record. Its bigger rivals include Fluor Corp. (FLR) and Kiewit Construction Group Inc.
McNally said he’s “talked to everybody” except the very biggest in his quest to make an acquisition. The ideal purchase would add a business where Skanska has little presence, such as power-plant construction.
“I’d like to see an acquisition in the U.S. so they beef up their infrastructure business,” said David Zaudy, a Stockholm-based analyst at Pareto Ohman, who recommends investors buy Skanska’s shares. “An acquisition, for example, in Chicago would be appreciated.”
Skanska’s U.S. orders are continuing on a good level, with “quite strong” bookings in the second half that are pointing to a “promising” few months entering into 2012, Pontus Winqvist, head of Skanska’s investor relations, said at the interview.
Bridges, Rail Lines
U.S. construction spending in October fell 0.4 percent from a year ago to $799 billion, the Commerce Department said Dec. 1. The U.S. economy is “expanding moderately,” the Federal Open Market Committee said Dec. 13.
“For the small and medium-sized contractor it’ll be tough going,” McNally said. “There’s not a lot of the small stuff and there’s enormous competition. But the market for the big contractors is better than it’s been for a while,” driven by decisions in recent years to boost investments in bridges and light-rail mass transit systems, he said.
Federal and state infrastructure spending is set to decline over the next couple years, leaving the “short-term future looking bumpy,” McNally said. President Barack Obama and his Republican opponent are likely to promise more construction investments during the election to boost jobs, which may come to fruition starting in 2014, McNally said.
In early 2010 Skanska entered the commercial development business in the U.S., building offices to lease and then sell them. It operates this business in Houston, Boston, Seattle and Washington, D.C.
Skanska is now trying to sell its office building that’s located five blocks east of the White House, seeking to close that deal in early 2012, McNally said.
“Our ability now to get sites is fantastic because the banks are not loaning to the local developers” due to the weak economy, McNally said. “We’re going in with our own cash, we’re not going to any banks.”
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