Way to Grow

One year after Centex acquisition, Balfour Beatty still pushing expansion

By Debra Wood

The firm recently complete One Arts Plaza, a mixed-use development in Dallas.

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 in 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 such as 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.

The firm ranked No. 16 in this year’s Texas Construction’s Top 130 Contractors ranking, reporting $324 million in Texas revenue for 2007. The firm ranked No. 30 on the same list the previous year, with $186 million instate earnings. Centex ranked No. 5 with $412.6 million reported for Texas revenue in 2006.

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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, with operations in Texas, North and South Carolina and California.

By 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.

He says Balfour Beatty has allowed the divisions to continue on their courses, while 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 and proven track record.

Texas activity Jones calls the Dallas-Fort Worth market vibrant and says there has been an increase in work within the past six months.

“We’re seeing a lot of opportunities” he adds. “We have been awarded $600 million in projects in the last 90 days.”

The 2011 Super Bowl, to be played in Dallas, has created some vibrancy in the market, he adds. The Gaylord Texan resort property, which Balfour Beatty completed a few years ago, plans a $150 million expansion. Jones says the company will pursue the project.

Jones credits some of the action to opening an office in Fort Worth two years ago. Balfour Beatty was recently awarded a $230 million contract to build Glorypark, a mixed-use project in Arlington, being developed by Hicks Holdings and Gatehouse Capital, both of Dallas. Jones expects construction to start this summer.

The contractor is working on two Dallas-area office projects, each valued at $100 each. Depending on the future of the office marketplace in the region, the projects are set to start this summer.

“In Dallas, right now, the office market is booming,” Parolisi says.

On the health-care scene, the company is building a freestanding hospital for Texas Health Resources in Flower Mound; a $70 million expansion at Scott & White Hospital in Temple; a $20 million expansion at Harris Methodist Hospital in Fort Worth; and a $100 million expansion at Children’s Medical Center in Dallas.

Additionally, the company has won the $30 million Frisco Dr. Pepper Star Center Expansion contract and a $70 million contract to build a new sanctuary for Gateway Church in Southlake. Jones says he expects both jobs to start this spring. It also was awarded a $500 million jail and courtroom project for Ellis County. And just coming out of the ground in Austin is a $150 million, 55-story condominium called The Austonian.