Transfield capitalizes on growth in services demand

Australian maintenance contractor Transfield Services (ASX:TSE) continues to go from strength to strength.

Bloomberg recently reported that Transfield Services were considering offering up to $A529 million for GRD, with particular interest in its Minproc engineering group and the waste recycling technologies it boasts.

GRD is a recognised supplier of technology and services within the mining sector and also has significant contracts in the UK and Europe with local councils and other industry sectors.

Just one of a trail of good decisions by the team of Transfield Services. I worked for this company before it was separated from Transfield in Australia where we were providing turnaround management services to BHP at the time. (Many moons ago)

Their success since that time is a testament to just how strong the market is for quality services and technologies in the areas of maintenance and asset management.

In recent press releases they have announced facilities management tie ups in Qatar, they already are into their second year of a maintenance contract there with RasGas, opening an office in Calgary to take advantage of the boom there, renewed contracts with Shell in Malaysia, and the acquisition of Intergulf giving them an additional 400 workers and an even greater beachhead in the Gulf states.

Dubai Aerospace Enterprise takes a stake in US Aerospace

The mergers and acquisitions market in the field of maintenance outsourced providers stepped up a notch this week with Dubai Aerospace Enterprise (DAE) announcing a $1.9 billion acquisition of engine maintenance firm Standard Aero and aviation maintenance company Landmark Aviation.

The integration of these companies within their Middle Eastern operations under DAE Engineering will further develop the company’s capacity to deliver services for commercial engines such as the the General Electric CF34, the Rolls-Royce AE3007 and Model 250, and Pratt & Whitney Canada’s PW100 and PT6 as well as a range of propellers and auxiliary equipment.

The purchase shows the growing interest in asset maintenance companies by large investors such as the state backed DAE, and is part of the increasing trend towards further consolidation within the industry. This is particularly true of the burgeoning aerospace industry within the Middle East as providers scramble for position to provide the services the industry will be requiring.

As the prize continues to increase and more companies lean towards outsourced maintenance providers, we are expecting to see even further consolidation in the area of services and technologies as companies try to cash in on the need for reliability in process, infrastructure, aviation and utility industries particularly.

However it also shows another uncomfortable side to the acquisitions feast. The Middle East has made a lot of progress but it is still a long way from what commentators would call a fair and open marketplace. Nepotism, national associations (often family assets of the local royalty), and the “mens club” tend to determine who will walk away with what part of the pie, rather than the best value for money.

This means that companies backed by state funding and entrenched discriminatory practices will be able to stride through the worlds markets taking advantage of open markets and lax ownership laws within the developed world.

Interesting times for investors looking for the next take over target. The recently rebuffed offer by Transfield Services for GRD in Australia, the recent takeover of Maximo by IBM, the private purchase of Aladon by Ivara are all signs of that the market is heating up as even small and mid size firms strive to be a part of the bigger picture.