ATTRACTIVE PRICES: With the market stabilizing, buyers are tentatively looking to make acquisitions.
TALLINN - Merko Ehitus, the largest listed Baltic construction company, has its “eyes open” for acquisitions in neighboring Latvia and Lithuania, where companies are suffering from a steep regional slump, says Chief Executive Officer Tiit Roben, reports Bloomberg. Tallinn, Estonia-based Merko, which earned more than 90 percent of 2009 revenue from building projects, also wants to boost its share of the Baltic road construction market, Roben said. “The goal of the coming years is to boost our presence and market share in the Baltic countries,” Roben said. “We see little need for acquisitions inside Estonia as there isn’t much that we would need to add to our competencies here.”
Construction volumes shrank 54 percent in Lithuania, 48 percent in Latvia and 30 percent in Estonia last year after the global credit freeze, and spending cuts by their governments worsened the region’s recession, which was sparked by the end of a debt-fueled property bubble. Estonia’s construction volumes may fall a further 10 percent this year and start to recover only next year, while Latvia and Lithuania will trail Estonian developments by about a year, Roben forecast.
“As the company’s balance sheet is strong, expansion via acquisitions in neighboring countries would be very much welcome as conditions for it are certainly better than during the boom,” said analyst with Swedbank, Risto Hunt, in Tallinn. Hunt said he may raise his price estimate for Merko, which is about 15 percent higher than the present market price. Merko shares have risen 35 percent this year, compared with a gain of 38 percent for the OMX Tallinn index.
There has been some “easing” in lenders’ attitudes toward the construction industry in Estonia over the last six months, while banks remain “very stiff” in Latvia and Lithuania, Roben said. Merko, which had 761 million kroons (48.7 million euros) in cash and deposits at the end of last year, seeks to benefit from the situation by offering co-financing to both private and public sector customers, Roben said.
Merko earned 69 percent of its revenue in Estonia last year. It saw sales at its Lithuanian unit shrink more than 90 percent, to 70.9 million kroons. The company expects to see “positive changes” after replacing its top management at the unit last year and increasing cooperation across Baltic units “already from the bidding phase,” Roben said.
The company, which competes with Tallinn-based Nordecon International, and the local units of Sweden’s Skanska and Finland’s YIT, last month reported 2009 net income shrank 61 percent to 114 million kroons as revenue dropped 32 percent to 3.2 billion kroons.