The playing field has levelled: Brecht | by Jeff Hutton

The playing field has levelled: Brecht

By Jeff Hutton

Over the past four years, former Bilfinger Berger Australia turned Valemus Managing Director, Peter Brecht, usually found himself up against much larger companies. Now Managing Director, Infrastructure at Lend Lease – following that company’s $960 million acquisition of Valemus in March – Brecht says he’s looking forward to a more evenly matched fight.

The playing field has levelled: Brecht

‘Having the Lend Lease brand and its balance sheet behind us is going to be the big benefit,’ Brecht says. ‘That’s going to make it a much more level playing field than it was previously.’

More than a year after his former German parent, Bilfinger Berger AG, sent Brecht around the world to drum up support for a potential IPO of its Australian businesses, Brecht is now folding Baulderstone, Abigroup and Conneq into Lend Lease.

In play are billions in hospital, transport and other infrastructure projects – as well as billions more in resources related infrastructure. Brecht says his focus is on realising the efficiencies that melding the two companies should create, without losing the human capital and corporate identities that made Bilfinger Berger Australia an attractive acquisition for Lend Lease in the first place.

‘It’s been 15 months of pretty hard yakka that has taken me outside of the business,’ Brecht says.

‘We need to deliver over the next 12 months. When someone is paying a billion dollars for your business, they want you to hit a few targets too.’

When takeovers don’t succeed, it is usually because of a failure to respect and accommodate the corporate culture and senior leadership of the acquired company. In this case, Lend Lease has retained most of the senior executives across the former Bilfinger Berger group – starting with Brecht. That’s because Lend Lease is counting on their expertise, contacts and knowledge of the infrastructure marketplace to secure even greater success.

UBS analyst John Freedman, who maintains a ‘buy’ recommendation on Lend Lease, says the combined companies ought to be worth about $9.75 a share. This compares favourably with less than $7 at one point back in November. Full year net income may rise by more than half to just under half a billion dollars by June 2013.

The takeover will boost Lend Lease’s construction earnings to 43 per cent of sales from 25 per cent, Freedman says.

‘It takes Lend Lease into the strongly growing engineering construction space, an area we have believed Lend Lease should have entered a long time ago,’ he says.

The integration period is scheduled to run until mid-year as Brecht and Lend Lease Group Director of Operations, Scott Charlton, sort out how to meld back office operations as well as some of the other savings, which analysts say the merger will bring.

‘Peter has been a very successful leader of [the company] and the construction industry in general,’ Charlton says.

‘He has developed and retained a successful team and we believe he has a lot to add to the Lend Lease Group as Managing Director, Infrastructure.’

Brecht says that retaining him to run the infrastructure business sends a strong signal to management, engineers and project leaders – and clients – that Lend Lease want them to perform and carry on as before.

‘There’s not going to be a big change of priorities,’ Brecht says. ‘Lend Lease will be looking for us to grow and expand.’

Teaming up with Lend Lease may make it easier to attract new talent, too, with the company’s hefty balance sheet paving the way to compete more ably for project wins.

Brecht says that retaining him to run the infrastructure business sends a strong signal to management, engineers and project leaders – and clients – that Lend Lease want them to perform and carry on as before.

The playing field has levelled: Brecht

‘Lend Lease has been well received in the business units. It makes our business units more attractive employers, because they are part of a large Australian company.’

By folding in Valemus’ constituent businesses, Lend Lease takes the reins of a company that in any one year would bid $20 billion worth of work. At the end of last year it had $5.3 billion of secured work in hand. It had another $1.7 billion pending.

‘Lend Lease had internal plans to get into engineering and infrastructure,’ Brecht says. ‘Acquiring our business gives them a big chunk of that.’

Valemus had already opened offices in Western Australia to vie for work from the likes of Fortescue, Rio Tinto and elsewhere in the resource sector. Abigroup already works on Rio Tinto’s rail and port projects.

The infrastructure business may be well placed to take on marine work for Lend Lease on its Barangaroo project in Sydney, building on Baulderstone’s work at Port Botany, Brecht said.

Diversification and enhancing the joined company’s capacity to take on work were drivers behind the takeover. That diversity will help shield the business from slumping demand in some parts of the market. Commercial construction will likely be a laggard this year, while infrastructure promises a steadier stream of work.

‘Non-residential work is dropping off, but in the infrastructure space opportunities are plentiful,’ Brecht says.

Brecht says he’s counting on support from his existing senior management, including Abigroup Managing Director, David Jurd, and Baulderstone head, Ian Luck, to help drive the integration and compete for new business.

David Marchant, previously Chief Executive Officer of Australian Rail Track Corporation, took over as head of Conneq in March from Mark Elliott, who stepped down after nine years in the role.

Teams and the importance of human capital feature prominently in Brecht’s thinking. Throughout the interview with Future Building, he stresses how attracting and retaining people, as well as being sensitive to how teams work together, is a precondition of long-term success.

‘We put project teams together all the time,’ he explains.

‘You need to match and complement them; you don’t just say “I’ve got these blokes free at the moment, I’ll put them together”. There’s no point putting together blokes who hate each other’s guts. As long as the project manager has a good team, they will probably pull off a good job.’

He says that the secret of success for a CEO in the infrastructure space is being across the detail and knowing how projects are put together. Brecht says he’s happy to let managers develop their own style, but he isn’t afraid to step in when bad decisions look likely.

The playing field has levelled: Brecht

‘You have to lead by example. If you come in and try to bullshit, people in the construction business will see through it pretty quickly,’ Brecht says.

‘I don’t go off my head. When I get upset, people notice because then they know something is wrong. There’s a better way of managing people.’

His easy charm, mixed with an eye for detail and goal oriented approach, is what Scott Charlton says he’s come to expect from Brecht.

‘With Peter it’s always about honesty and integrity,’ Charlton says. ‘In meetings and just generally in business, Peter is always focused on the relevant issues on the table and getting an outcome.

‘He also has a great sense of humour – there’s a bit of the larrikin about him, so while he is all about delivery, he obviously enjoys what he does.’

That engagement with people and focus on the business makes it easier to spot potential problems, and quickly marshal resources to iron out wrinkles – before they escalate into more serious headaches.

Valemus last year had 135 projects on the go. In one case, a few years ago, a $150 million project on the Pacific Highway was in danger of falling behind schedule because of heavy rain. The company initially wrote down the project profit to $7 million from its original estimate of $12 million. The company called in extra people and resources from around the country to help bring the project on track. In the end, the project was completed ahead of time and with a profit of between $12 million and $13 million.

‘The challenge is to identify problems and get in early; take action in the early stages when you can bring in resources and fix it,’ Brecht says.

Projects are assessed through monthly reports, and then again through quarterly reviews that include the project team, the state manager, the state civil manager and the managing director of that business to review progress, as well as other measures such as cost to date.

While the new company will be in better shape to take on larger players, it won’t be immune to the skills shortage that plagues the sector.

Brecht is involved with Newcastle University to help drum up more interest in engineering among high school students.

‘The skills shortage is only going to get worse. It creates problems because not only does it drive up wages, it makes it harder to put good teams together, and that raises your risk profile,’ Brecht says.

‘We don’t do enough to encourage kids in year 10 to study maths and science so that they can pursue studies in engineering.’

When his eldest son was mulling over what to study at university, Brecht says he kept ‘studiously quiet’. The eventual decision was engineering at Sydney University.

‘I deliberately tried not to influence the oldest bloke there, but when he told me his decision, I said, “well, it’s what I’ve done for 25 years and I wouldn’t want to do anything else.”’