Enriched by booming domestic orders, Spanish construction groups now are flexing their muscles globally. As well as moving into high-value-added sectors, contractors are increasingly exploiting their toll road know-how to pry open new markets. The U.S. is among prime destinations.

Ferrovial Cintra has over 50% of Canadian concession for Toronto 470 ETR highway.

“We see the Spanish contractors now in the U.S. [where] they were not a few years ago,” says Stuart Graham, president and chief executive officer of Stockholm-based Skanska A.B. “They know the [toll road] business quite well. They’ve been at it for a long time.”

The company with the most privately financed U.S. toll road concessions is Cintra, controlled by Spain’s Grupo Ferrovial. Spanish firms are in three of four teams shortlisted last month to bid for the $2-billion Texas North Tarrant Express concession, and were in six of the original the seven candidates.

Spanish firms also are active further afield. They “have demonstrated a higher international profile in the last 12 to 18 months, particularly through high-profile acquisitions like [U.K. airport owner] BAA,” says Ken Reid, an executive board member of Germany’s Bilfinger Berger A.G., Mannheim.

Coming from “a profitable domestic market,” the Spanish contracting industry can mobilize “a sizeable balance sheet,” says Ian Tyler, chief executive of Balfour Beatty Group., London. “They appear to have, in terms of management of infrastructure…a very sound and long-term approach.”

The Spanish also are risk takers. In June, Spain’s Global Vía Infraestructuras was left as sole bidder for a $550-million Mexican toll concession. Its sole competition, Paris-based Bouygues Construction S.A., withdrew.

Although the Nueva Necaxa-Avila Camacho road is mountainous, “there was no geological survey,” says Bouygues Deputy Chief Executive Officer Michel Cote. “I bid a couple of times with Spanish contractors....They are very good partners,” he adds.

Spain’s international contracting stemmed from domestic recession some 30 years ago, when “civil engineers were selling dictionaries,” says Alicia Revenga, export group director at SEOPAN, the major contractors’ association, in Madrid.

Ferrovial Heathrow airport's fifth terminal, now controlled by Ferrovial, will open next spring.

Service Evolution

Exporting began with traditional contracting, mainly in Latin America. But from the 1980s, contractors started climbing the value chain. They “are moving more and more away from being traditional construction businesses and focusing on services provision,” says Reid.

In parallel, numerous small and medium-sizes firms merged into major corporations. Further consolidation will be “very difficult,” says Victor Acitores, construction industry analyst at Kepler Equities, Madrid. “Companies are [mainly] controlled by families and there is not enough free-float [shares] for hostile bids,” he explains.

Following many mergers, the biggest contractor, Grupo ACS, recently reported sales in the six months to this June rising 55%, to $14.2 billion. Construction accounted for just 35%, 12% over the previous year, due mainly to domestic civil and nonresidential work. Services provision of various types and energy operations provided the biggest and fastest growing share of ACS’s business.

Today’s Spanish contractors are not forced to export. Huge infrastruc-ture grants from the European Union and rampant residential demand have filled order books. Despite its relatively small size, Spain was Europe’s third biggest construction market last year, says Revenga.

And the Spanish have it all to themselves. “It’s much too dangerous to bid in Spain,” says one senior foreign construction executive. Bid prices have been low and “the final account takes into consideration a lot of claims,” he adds.

European Union funds for Spain are drying up, following the 2004 entry of poorer nations from further east. The building market also is “now a little bit exhausted,” adds Revenga. But vast new highway investment plans by central and regional governments are helping underpin a “horizon of stability,” she says.

BAA Ferrovial landed huge debt to buy U.K. airport owner BAA plc.

About three-quarters of Spanish contractors’ sales are still domestic, with Ferrovial leading the international pack. Nearly two-thirds of Ferrovial's sales of $9.7 billion in this year’s first half were foreign. Four-fifths of gross profit came from abroad, 59% of it from the U.K.

 In the longer term, contractors “know the Spanish economy is not going to maintain growth,” says Acitores. “In terms of activities, contractors have invested a lot in energy, services and concessions.” And they are moving abroad through acqui-sitions.

With $12.8 billion of sales from construction, services and cement, Fomento De Construcciones Y Contratas S.A. last year bought one of Austria’s main contractors, Alpine Mayreder Bau GmbH.

In recent years, Ferrovial has acquired W.W. Webber LLC, Houston; U.K. contractor Amey plc.; Switzerland’s airport services provider, Swissport International Ltd.; and Budimex Sp. z.o.o., Poland’s biggest contractor.

Ferrovial’s biggest deal was to lead last year’s acquisition of London-based BAA plc., the world’s largest private sector airport operator.

BAA has left Ferrovial with $45 billion net debt, which the firm is now refinancing under a cloud of uncertainty, says Acitores. BAA is undergoing an antitrust investigation over its 60% control of U.K. passenger traffic. And its airport charges for the five years from next April are under regulatory review.

In another big acquisition,  ACS in March secured 25.1% of Germany’s leading contractor Hochtief A.G. for $1.7 billion, becoming its largest shareholder. Through Hochtief's New York-based Turner Construction Co. Inc., ACS “will move close to the public administrations in the U.S. to expand in the coming years,” says Acitores.

In its overseas drive, Sacyr Vallehermoso Group is mounting a hostile takeover bid for France’s third biggest contractor, Eiffage S.A. The move is currently being...