In an industry where companies often win contracts of $100 million or more to design oil refineries and desalination plants, a relatively small contract of perhaps a few million dollars could end up garnering billions for Aecom Technology Corp.
The downtown L.A. engineering services giant was recently selected to design the master plan for Rio de Janeiro, Brazil’s 300-acre sports and housing complex for the 2016 Olympics.
That small award could help Aecom build a big presence in Brazil, an emerging market with one of the world’s fastest-growing economies – but one that international engineering firms have found difficult to tap.
Aecom, which has had some operations in Brazil since 2005, hopes to leverage the contract to get a piece of major road, airport and other infrastructure projects planned over the next several years.
“Brazil is one of the major emerging markets,” said Andy Kaplowitz, a senior analyst with Barclays Capital Inc. in New York. “It obviously has a lot of infrastructure growth ahead of it. To the extent Aecom can grow its local presence in Brazil, it’s going to be lucrative.”
Aecom, which reported $6.5 billion in revenue last year, including $2.6 billion from international work, already operates in some 125 countries. But it has announced few contracts in Brazil, the world’s seventh largest economy. In 2010, it won a $6.7 million urban planning contract in Sao Paulo.
Aecom executives declined comment on the Rio master plan contract because it is still being finalized. However, Kaplowitz estimated the contract is worth no more than a few million dollars.
Michael Burke, Aecom’s chief financial officer, said Brazil represents a big market, and one that’s just now ready for the kinds of major infrastructure projects Aecom specializes in.
“Given where they are in their economic development, they now can afford the infrastructure that will take them to the next level,” he said.
New market
Outside of a few industries, including oil and gas, which represents the bulk of Aecom’s work in Brazil, contracts for big international engineering and construction firms are few in South America’s largest country, said analyst Robert Connors, a vice president with Stifel Nicolaus & Co. Inc. in Baltimore.
“It’s mostly the oil and gas side. Finding qualified oil and gas engineers is pretty tough in this market, let alone in Brazil,” said Connors, who follows Pasadena’s Jacobs Engineering Group Inc. and other engineering and construction firms.
In fact, earlier this year, the editors of Brazilian trade magazine O Empreiteiro wrote that the country’s infrastructure market “remains virtually closed to foreign companies.”
Kaplowitz said that’s partly thanks to a preference for local firms and workers, which is why Aecom winning the Olympic Park master plan is so important.
The master plan details the general layout and use of the area during and after the 2016 Games. Along with laying out the sites of stadiums and other buildings, the plan addresses details such as the location of parking lots and public transportation access.
The plan dictates where structures will go, but building design is not part of the plan. Contracts for that work will be awarded separately. Burke said the company plans to bid on that work and other Olympics-related projects, such as roads and sewers.
To do that – and get more Brazilian contracts in its core engineering and design businesses – the company plans to buy local firms.
“We’d like to acquire a platform with a large number of Portuguese-speaking engineers and take a very significant share of that market,” Burke said, adding that the company is in active discussions with Brazilian firms.
He said the company, which has 140 employees in the country today, would like to eventually have thousands of employees there.
Aecom has a track record of buying firms, in both emerging and mature markets. It has been the company’s chief method of expansion in Russia, India and China.
“Our strategy around the world has always been to bring our global expertise and leverage it through local talent,” Burke said.
Competition
Kaplowitz said Aecom isn’t the only company trying to tap into Brazil, which saw 7.5 percent economic growth last year. Others are approaching the country in much the same way – building a foothold and then figuring out how to expand.
“Other companies have generally been tiptoeing into Brazil. They’re devising plans. They have a very small presence in Brazil, like Aecom. They’re thinking about it, but they haven’t made any major moves yet,” said Kaplowitz, who said it remains to be seen how much market share international firms can take from local players.
Burke said he knows Aecom’s competitors are looking into Brazil, not just because of its growth, but because the country has reached a tipping point: Its economy and political system are stable, and its gross domestic produce is now large enough to allow for major infrastructure investment.
“I wish I was the only one that saw that, but I think it’s well noticed by our competitors,” he said.
