Despite their continued business slump this year, the nation’s leading construction companies are increasing outbound merger and acquisition activities to further tap into overseas markets.
According to a market source, GS E&C, the nation’s fourth-largest builder, is considering the buy out of United Arab Emirates-based Global Process Systems for up to 100 billion won ($92 million). GPS specializes in engineering-procurement-construction projects in the oil and gas industry.
GS E&C declined to comment on the deal, but a company official said, “The company is making diverse efforts to find new income generation sources overseas, while rejecting low-priced projects.’’
Market analysts stayed positive over continued investments of local builders in overseas markets, although some of them, including GS E&C, disappointed the market with a massive loss in their operating profit in the first quarter of this year, caused by their low-priced order-winning practice over the past few years.
“The move is aimed to turn a crisis into an opportunity. Local builders are seeking outbound M&A deals to strengthen their competitiveness in overseas markets, not only for external expansion,” Kim Hyung-kun, a stock analyst from Meritz Securities, said.
“I think the acquisition of GPS could help GS E&C to improve profitability in the UAE market, one of the builder’s core overseas markets, and to create new business opportunities in the energy field.’’
Ahead of GS E&C, Samsung C&T spearheaded an outbound M&A in the construction industry by buying out Whessoe, a U.K.-based oil and gas storage tank builder, in March this year for 20 billion won ($18 million).
The nation’s second-largest builder sought the deal based on a rosy outlook for global LNG-related infrastructure building projects. Ernst & Young, a global management consultancy, estimated that the global market for LNG storage and handling facility construction is expected to reach $50 billion by 2020 as the development of shale gas and urban development efforts lead to a growing demand for LNG.
“The outbound M&A deals are expected to rise as local builders, regardless of size, are turning their business focus to overseas markets along with a rising global construction demand,” an official said. The accumulated amount of overseas construction orders won by local builders for the first eight months of this year amounted to $39.7 billion, a 10-percent rise compared with the same period last year, the association said.
The annual target of the nation’s construction industry for overseas orders are set at $70 billion this year.
By Seo Jee-yeon (
jyseo@heraldcorp.com)
