Fletcher Building taps Jefferies to sell construction unit

Fletcher has hired Jefferies to sell its construction unit, per sources. Picture: iStock

Australian and New Zealand building materials company Fletcher Building has hired investment bank Jefferies to sell its construction unit, say sources.

It comes after the $3bn Australian- and New Zealand-based Fletcher told the market on Monday after inbound interest and the completion of a strategic review, the company has started exploring potential sale options in relation to its construction division and its Higgins, Brian Perry Civil and Fletcher Construction Major Projects business units.

It also flagged it had appointed financial advisers.

Managing director Andrew Reding said no decision had been made to sell and the company would carefully consider the value of any options presented from the process before deciding whether to move ahead.

DataRoom reported at the start of the month Fletcher had fielded an offer for construction assets from $10.5bn Malaysia-listed company Gamuda, one of the largest engineering firms operating in the infrastructure sector in its home country.

It comes as Jefferies also works on the sale of RetireAustralia, half owned by New Zealand-listed infrastructure investor Infratil.

US-based Investco has expressed interest, but was understood to have put forward an offer in recent days that was underwhelming.

Jefferies has also explored expanding its advisory operations across the Tasman before determining it had other priorities elsewhere.

Market sources say the New Zealand construction industry had been left wide open for new international players to enter, with Fletcher retreating from some work.

The New Zealand government was also urging international industry participants into the market to provide additional competition and their expertise ahead of a planned multibillion-dollar infrastructure spending pipeline.

Fletcher Building has been selling assets after its former chairman and CEO departed following a worse-than-expected loss, and larger-than-expected project writedowns and asset impairments.

Miles Advisory was hired to sell its plumbing supplies business Tradelink, which was purchased by Metal Manufacturers for $170m last year.

Jarden has worked with the overall group, advising on its equity raising last year.

Of the construction assets, the maintenance unit Higgins that it purchased in 2016 for $NZ315m is considered to be the most sought after.

Since then, it has sold the Higgins Fiji operations, reaping about $NZ40m in proceeds.

France’s Vinci, which already operates in New Zealand, was also said to be hovering.

For the six months to December 31, the construction unit generated $NZ20m of earnings before interest and tax after a loss in the previous corresponding period.

When Fletcher Building purchased Higgins, it was generating about $35m of earnings before interest and tax.

The company has offered indications that it would not part for the construction unit for less than $NZ300m.

Analysts expect the construction division would likely generate between $40m and $45m of EBIT this financial year and assuming an eight times earnings multiple — the price Fletcher paid for Higgins — the business could be worth $NZ340m to $NZ360m.