Turmoil in construction sector offers opportunity to new player

There’s an opportunity for a third big construction company to rival Fletcher Building and Hawkins, according to players in the industry.

Big changes are afoot, with the industry’s second largest company, Hawkins, set to be sold to Australian conglomerate Downer EDI and its largest, Fletcher Building, hitting financial turbulence.

Observers say there are always rumours about new competitors entering the market, which historically has seen several international names come and go.

LT Mc Guinness of Wellington, Christchurch’s Leighs, Ganellen form Australia and China Construction have all recently expanded into Auckland.

One industry expert said several are said to be ’’knocking on Hawkins’ door’’ in terms of size.

Chinese ’’names’’ were also sometimes bandied about but to date they had partnered with local organisations.

Anyone entering New Zealand’s construction industry faces several obstacles, including volatile, lumpy profits.

They also need enough resources to pay a cash bond required by banks and clients.

A bond of up to 5 per cent of the contract means most companies apart from Fletcher Building are unable to take on more than two or three big projects, experts say.

Even with a big pipeline of work, John Tookey, a built environment professor at Auckland University of Technology, said weakened demand was always a risk.

‘‘Sentiment can change relatively quickly with global financial conditions’’.

However, at present there is no company that can rival Fletcher Building for size or breadth across the industry.

Described as ‘‘the only truly integrated builder in New Zealand,’’ Fletcher has close ties to the government and institutions, and good access to resources thanks to its building materials businesses.

Because of its scale, Fletcher Building fares well with banks for big, complicated projects. But even Fletcher has run into difficulties of late, with a profit downgrade of up to $150 million at the end of its financial year, largely due to two projects.

Nevertheless, the construction outlook is strong and with $5 billion worth of infrastructure work planned in the next five years, Fletcher’s purchase of roading firm and quarry owner Higgins Construction last year is expected to keep it in good stead.

Hawkins may be a potentially stronger player after its takeover by Downer, and one expert said there was room for another infrastructure company to tack on another building firm to get instant scale.

It was not so much that the industry needed to consolidate as an opportunity, he said.

‘‘And imagine if that party could go one step further and bring an ‘Ikea’ of the world supply chain with it, so we don’t have to put up with some of the more ’protected’ offerings that come from the existing supply chain.’’

Vince May, an Auckland architectural consultant, said because Fletcher was such a broad operation, it enjoyed a lot of efficiencies, but those savings remained within the company, so another big competitor would be welcomed.

Phil Eaton, of Greenstone Group, an industry consultancy, said it was no secret that the industry had under-invested in itself as a result of the boom-bust nature of the market.

‘‘Experienced players from overseas that can bring their smarts in terms of design management and innovation would be welcomed with open arms by the market because of the scarcity of these skills.’’

The bigger ‘‘log jam’’ was another level down, with suppliers and subcontractors.

‘‘Ideally, a new entrant will encourage other suppliers and subcontractors it has relationships with to enter the New Zealand market.’’