Way to Grow

One Year after Centex Acquisition, Balfour Beatty Still Pushing Expansion

By Debra Wood

A year after Balfour Beatty, a London engineering and construction firm, purchased Dallas-based Centex Construction and turned it into Balfour Beatty Construction, its executives say the company is poised for explosive growth.

“Where Centex took our earnings and excess cash and deployed them in the home-building operation, Balfour Beatty is interested redeploying them in the U.S. and growing the commercial market,” says Robert B. Van Cleave, chairman, president and chief executive officer of Balfour Beatty Construction in Dallas, who has served in that capacity since 2003.

Balfour Beatty bought Centex Construction for $362 million last April. Currently operating offices in Texas, Florida, North Carolina and Washington, D.C., Balfour Beatty Construction anticipates pushing west into California, Arizona and Washington State by acquiring firms that are a good cultural fit.

“We need to be national, and our customers need us to be national,” Hambright says. “Balfour Beatty has quite an appetite for acquisition, and that opens the door for us to have capital to go find candidates.”

Along with acquiring new firms, Balfour Beatty plans to expand the local divisions through organic growth, diving deeper into existing markets, which include health care, K-12, corrections, office, military and some high-rise residential.

“Markets like office, health care and education will stay around for the long term, says John Parolisi, senior vice president of strategic planning and marketing and planning for Balfour Beatty.

That organic-growth strategy began four years ago and has paid off, with revenues increasing from less than $1.5 billion to $2.3 billion, Van Cleave says.

Balfour Beatty Construction, the U.S. company, had its best year ever in 2007 and is poised for a good year again, entering 2008 with a $6.2 billion backlog. Van Cleave has set an objective of 10% organic growth per year, and he says growth will be boosted another 10% a year if the company acquires a competitor.

“We think growth will be the output as opposed to a primary goal,” Van Cleave adds.

Expanded Capabilities

At the time of the Centex acquisition last year, Balfour Beatty already had a presence in the United States with the following divisions: Heery International, a design and project management firm based in Atlanta; Balfour Beatty Capital of Atlanta; and its civil engineering firms, Balfour Beatty Rail of Jacksonville, Fla., and Balfour Beatty Infrastructure, which has major operations in Texas, North and South Carolina, and California.

By now being able to work in tandem with these units, the building construction operation will have expanded capabilities.

“We live in a supply chain that comes together to create an outcome for clients,” says Bob Hambright, president/CEO of the Southeast division in Charlotte, N.C. “We were always just a construction manager in that supply chain. We could go outside to find a design partner or an equity partner. (But) now we have all those components in house, within the family of companies.”

An example of these newfound capabilities is playing out in education and other markets.

The Wake County Public School System in Raleigh, N.C., has short-listed Balfour Beatty’s team to build an elementary school and then lease it to the district. The company is working on similar proposals for high schools in Raleigh and Charlotte, as districts look for ways to build capacity with limited resources.

Hambright says the U.S. efforts follow Balfour Beatty’s partnering with governments in the United Kingdom to build schools and roads.

The Florida division, based in Plantation, also is pursing public-private partnerships. It recently received a contract to build a parking garage for Broward Community College, says Ray Southern, CEO of that division.

“[The acquisition] was the best move that could have happened to us,” Southern says.

Southern says Balfour Beatty has allowed the divisions to continue on their courses, while at the same time offering opportunities for pursing promising opportunities.

Clients have otherwise responded well to the ownership change, says Doug Jones, president and CEO of the Dallas-Fort Worth division, who describes the transition as a “nonevent.”

“The thing that’s been a little bit of a surprise to me is rolling out a new brand in our markets,” Jones says. “I initially thought we’d have more challenges with clients, wanting to know what the change would mean. But projects we thought we’d be given from repeat clients have come through like we expected.”
Jones estimates that 80% of the work completed out of his office comes from repeat clients. Health care represents about 45% of the jobs.

In Florida, Southern says 60% to 80% of his division’s work comes from repeat clients. Its major market sectors continue to be hospitality, corrections, office and education.

Looking forward, Van Cleave says he’d like to see all work sole-sourced, with owners standing in line to work with certain companies because of their commitment to quality, ability to deliver as promised and proven track record.

Southeast projects

Balfour Beatty is keeping busy in North Carolina and building a strong backlog. In Charlotte, the contractor is building the $450 million Bank of America Center, a mixed-use complex that includes an office tower for Bank of America, a parking deck and Ritz Carlton hotel.

It also has begun a $58 million, 100,000-sq-ft expansion and renovation at the North Carolina Museum of Art in Raleigh, which is scheduled for a 2009 completion. The project will provide the museum with 45% more exhibition space.

The company has two projects for the University of North Carolina. At the Charlotte campus, in association with Leeper Construction Co. of Charlotte, Balfour Beatty will serve as construction manager for a $52 million 196,000-sq-ft student union.

And at the Chapel Hill campus, the company is building a $165 million science complex. The first phase includes site utility work and construction of a lecture hall and a chemistry building. During phase two, crews will add another lecture hall, a science library and more chemistry space and classrooms.

In a joint venture with Barnhill Contracting of Tarboro, N.C, Balfour Beatty received a contract to build the $215 million Wake County Justice Center project in Raleigh. Construction is scheduled to start in 2010 and wrap up in 2013. In Atlanta, Balfour Beatty continues working on the first $130 million phase of the mixed-use Streets of Buckhead. It also is completing a $49.5 million rehabilitation and 90,744-sq-ft addition to The Prado shopping center in Sandy Springs, Ga.

The Charlotte office also heads up the company’s military housing work. The company is currently working on 12,000 units at 22 bases across the country, including Fort Stewart-Hunter Army Airfield and Fort Gordon in Georgia and Fort Jackson in South Carolina.

Hambright says the Southeast Division will continue to focus on commercial, educational and military projects. He adds that it might look at health care on a selective basis.

In Florida, Southern says he also has no plans to go after work in new sectors. He adds that the firm has plenty of work in education, corrections, hospitality and office. He adds, that while the company took a limited interest in residential condominium work, that market is “finished up.”

Southern adds that the Florida division finished 2007 with $745 million in revenue, significantly better than the division average of $550 million.

On the hospitality beat, the company is building an expansion at Disney’s Animal Kingdom Lodge at Walt Disney World and a 750-room addition to the Peabody Hotel. The Peabody states its overall development budget for the project as $420 million.

The company also is constructing Office Depot’s $150 million headquarters in Boca Raton and the $68 million, 175,000-sq-ft University of Central Florida College of Medicine in Orlando. It also received the contract to build the $140 million, 33-story Atlantic Centre office and retail center in Fort Lauderdale.

The division has multiple school projects in Fort Lauderdale, Orlando and West Palm Beach and is continuing work at the Jacksonville International Airport and the city of Cape Coral, where it heads up the program and construction management for the city’s five-year, $76.2 million Roadway Improvement Project.