The Laula Consortium, which is acquiring construction group Grinaker-LTA from Aveng for R100-million, reports that its goal is to transform the struggling contractor into a profitable Tier 1 black-owned group, while preserving the technical and human competence developed within the company over the past century.

The consortium’s owners include Oteo Investment Holdings (61%), Manzini Ventures (17%) and Upsize Trading (12%), with the balance of the shares set aside for senior executives and managers.

A new CEO and FD will be appointed once the deal, which remains subject to approval by the competition authorities, is consummated. The current expectation is that all outstanding conditions should be met during the fourth quarter of the 2019 calendar year.

Through the transaction, announced by Aveng on August 8, the Laula Consortium will acquire Grinaker-LTA (GLTA) Construction, which comprises GLTA Buildings Inland, GLTA Buildings South, GLTA Buildings KwaZulu-Natal, GLTA Civil Engineering, GLTA Plant & Yard and the GLTA Training School. The company currently employs about 4 000 people.

The Grinaker-LTA brand will be retained, but the company’s head office and the training academy will be relocated from its current location in Jet Park. New, smaller premises are in the process of being secured

Oteo Investment Holdings CEO Mlu Manci, who will assume the role of Grinaker-LTA executive chairperson after the transaction, stresses that there is no intention to chase order book growth. Aveng Grinaker LTA has, at points, been a R7-billion-a-year revenue business.

Instead, the contractor is to be sustained as a R3-billion to R4-billion-a-year revenue business for the foreseeable future, while prioritising margin expansion. This will be achieved, Manci says, through careful selection of clients who appreciate the global quality and safety standards of Grinaker LTA and who understand and honour contractual agreements.

The consortium will also seek to leverage its private-sector developer network, while taking an active role in supporting the development of technical contracting capacity in the public sector. “Exploitation and mistrust belong in the past,” Manci avers.

In addition, the new owners plan to add annuity revenue to the Grinaker-LTA business by taking on more operations and maintenance contracts, among other initiatives. The consortium views private–public partnerships as an area that presents opportunities, especially in the independent power producer sector.

The Laula Consortium’s focus on annuity revenues could also result in a further transaction involving Aveng Capital, but Manci stresses that discussions are still at an exploratory stage.

The consortium’s focus on profit ahead of scale has already informed the nature of the post-transaction contracts over which Grinaker-LTA will assume full control – that order backlog stands at about R2-billion.

The balance of the orders, including the Leonardo high-rise under construction in the Sandton central business district, will be completed through a service-level agreement with Aveng, which will continue to carry the construction and performance-bond risks.

“We have no intention of growing too fast,” Manci tells Engineering News.

“Our main aim is to use the foundations built at Grinaker-LTA over the past 117 years to create a sustainable construction business that will endure for another 100 years.”

Manci, who previously played leadership roles at both the South African Chamber of Commerce and Industry and Business Unity South Africa, says he and his partners – Bruce Zungu, of Manzini Ventures, and Ray Cele, of Upsize Trading – are under no illusions about the difficulties afflicting the domestic construction industry.

Aveng Grinaker-LTA has been a serial lossmaker over recent years, while large contractors such as Group Five and Basil Read have entered business rescue.

Nevertheless, the Laula Consortium is optimistic that the streamlined Grinaker-LTA can be returned to sustainable profitability, despite difficult trading conditions, and that the South African construction market will eventually recover.

“We expect the difficult times to persist for at least two more years,” Manci says. “However, he expects that the clean- up of State-owned companies, together with the creation of a national infrastructure fund to support public–private partnerships, will eventually help to improve prospects for the sector.

That said, Manci believes that an “honest conversation” is required between the industry and government regarding what he views as the current unfair distribution of risks, which is resulting in losses for contractors across many public infrastructure projects. He is also concerned about a growing tendency for construction sites to be disrupted by acts of violence, vandalism and intimidation.

Earlier this year, the Aveng Strabag Joint Venture, which was appointed by the South African National Roads Agency to build the R1.63-billion Mtentu bridge in the Eastern Cape, declared force majeure and withdrew from the contract, after the contract site was violently disrupted. Following the withdrawal, Strabag said it had never before experienced such violence, despite having worked in 80 countries globally, including Afghanistan and Iraq.

“We need to restore the image and reputation of South Africa and the construction industry. But we can only build ‘Team South Africa Incorporated’ if we are prepared to be honest with each other and deal with the difficult questions,” Manci concludes.