Duna Aszfalt acquires one of the largest Polish road construction companies

In line with the news announced last December, Duna Aszfalt Zrt. has successfully closed the transaction to acquire the Mota-Engil Central Europe (MECE) group of companies in Poland. With the acquisition of one of the leading players in the Polish construction industry, Duna Group has taken a key step in its expansion in Central Europe. The strategic importance of the transaction has a number of ramifications and messages, which we discussed with Attila Tompos, Duna Group's Director of International Relations.

More than 800 employees and a turnover of more than 80 billion

The executive notes that MECE was previously part of a Portuguese-based international group in Poland.

Founded in 1946, the Mota-Engil Group is one of Europe's largest construction concerns, present on three continents and in 27 countries, with a stake in around 280 companies. "As a member of the Portuguese multinational group, MECE has been operating in Poland since 1997, where it has grown to become one of the most prominent construction companies," adds Attila Tompos.

"Last year, the company, which employs more than 800 people, recorded a turnover of PLN 900 million, equivalent to HUF 83 billion."

Mota-Engil Central Europe's profile is focused primarily on road and bridge construction, but it also operates in the building construction sector, and runs six asphalt mixing plants and a granite quarry across the country, from where it supplies the market. In addition, the company undertakes projects in the electricity infrastructure expansion field and has a railway construction capacity as well.

Duna Group already has interests in Poland: Banimex, which is active in road and bridge construction, and WKS Duna Polska, which manufactures steel structures, are also part of the group. The current transaction also entails name changes: "The newly acquired company will continue to operate under the name Duna Polska instead of Mota-Engil Central Europe, while the other company will remain WKS Duna Polska."

Nearly 70 kilometres of four-lane roads currently under construction by the corporation in total

The company's importance in Poland is also reflected by the fact that it is currently working on three large-scale road projects:

• a 30 km section of the S74 motorway between Cedzyna and Lagow,
• the 23 km Lublin-Lubartow section of the S19,
• and the 15 km Kosztowy - Bielsko-Biała section of the S1;

bringing the total number of four-lane roads simultaneously being constructed on Polish motorways by its employees to 68 km.

The company's dynamism is also demonstrated by the fact that the number of its mixing plants has recently risen to six, the latest of which was built to serve the S19 contract. The new unit is equipped with a Benninghoven mixing machine, capable of mixing up to 320 tonnes per hour.

Diversified portfolio and a robust stance in building construction

As a stable market participant, the newly acquired Mota-Engil Central Europe has been generating annual sales of close to PLN 1 billion without major fluctuations in recent years, and this is backed by a well thought-out strategy. "It should be noted that the volume of road construction in Poland is also volatile: in recent years, for example, order volumes have fallen and there is huge price competition between bidders," Attila Tompos points out.

"In order to stabilise revenues and achieve better financing conditions, the company has expanded its complementary activities. As part of this, a significant building construction activity has been built up."

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In this sector, the company focuses mainly on office and residential buildings, and is currently working on a number of major projects in the country's northern cities, including Gdansk and Gdynia. Attila Tompos specifically highlights that Duna Group also acquired the company's building construction capacities as part of the transaction: "This decision is also influenced by the fact that market trends indicate that there is currently a demand for the construction of around 2 million apartments in Poland."

Significant upturn expected in the Polish construction sector

At the same time, the expected market trends in road construction in Poland are also positive. "In the past two years, new roads have been built at a rate of around 200 kilometres per year in the country, which occupies an area of around 322,000 square metres, but this figure is set to rise significantly thanks to a major road reconstruction programme announced last year," the executive said.

This picture is further improved by the fact that between 2021 and 2028, PLN 41 billion - around HUF 3,600 billion - of projects in Poland will be financed by the Cohesion Fund, mainly motorways and railways.

This move could also open the way to the Central and Eastern European market

However, Duna Group's transaction in Poland is not only motivated by the expected significant increase in local construction work. "Another benefit of the transaction is a more efficient allocation of resources: the more markets a company is present in, the better it can move its capacity between countries. This means that the company is less exposed to the economic fluctuations of a particular country and can maintain a more stable level of revenues."

Mr. Tompos adds that the Duna Group now also has concession experience, which will soon become a reference, and this could further increase its European flexibility.

In addition to this, the acquisition of one of the largest Polish road construction companies also serves objectives that go beyond the borders of the Polish market. "This move also serves as a basis for one of our group's strategic objectives, the expansion in the Central European region. One only has to think of the road construction tenders that have been released in our northern neighbours, which are within reach with the capacity we have now acquired in southern Poland." At the same time, the geographic proximity of the Polish company creates opportunities for a presence in Slovakia. In addition, the latter country is also easily accessible from Hungary, so there is a very solid background for entering the Slovakian market.

Working towards similar goals in the Czech Republic

In the meanwhile, Duna Group's entry into the Czech road construction sector has already been underway before the transaction under consideration: in recent months, Duna Aszfalt has been successful in three public tenders, in consortium with the Slovakian company Doprastav and the Czech company MI Roads.

The level of involvement in the Czech Republic is modest for the time being, but Duna Group is already setting up an office in the country, which will further help it to obtain important local market information. Attila Tompos also reports that the Hungarian group is keeping an open eye in the Czech Republic for new partnerships or potential acquisition targets.

The reasons why the acquisition creates huge potential

The large-scale Polish transaction has an additional advantage: with this move, the Duna Group has acquired not only a significant Central European company, but also its market capabilities and reach. "It is much more difficult to enter a country's market without the recognition of the local community than it is to enter with the experience granted by an existing market presence. Once the volume of the overall sector in a country starts to grow, from that point onwards all opportunities are there for the company to increase its existing market share. Working with local capacity, using local knowledge, complemented by the knowledge and references that we bring - this has huge potential."

Multinational experience can be extremely useful for the Duna Group

In terms of the value of the newly acquired MECE, Mr. Tompos specifically highlights that the company has a long history of operating in a multinational environment. "Duna Group, which has grown from a Hungarian-owned small company into a powerful international company, can benefit from a great deal of experience that the people working for the acquired company have and can transfer," Attila Tompos stresses.

The executive also adds that the current expansion process means that both the Duna Group itself and its employees need to further strengthen their respective multinational mindsets. "Anyone who has worked in such an environment knows that the operation of international groups requires a well-developed organisational structure and a clear definition of the boundaries of responsibility and commitment."

Current management will continue to lead the company

Mr. Tompos stresses that Duna Group intends to continue the work with the current management of the acquired company. "A young, successful management team is leading the newly acquired company, whose members have confirmed that they want to stay on and work with us." Elaborating on the specifics, he says that members of the Polish management team makes up the company's five-member Board of Directors. "There is also a three-member Supervisory Board, which now includes representatives of the new owner, including myself."

One of the main objectives is to capitalise on the synergies of the transaction

In closing, the director also outlines the tasks for the coming months: the first of these is to change the name and image of the acquired company and to help its professional integration into the Duna Group.

An important objective is to get to know the company's operations, rules and internal information in detail in the period starting from now. "The aim is to capitalise on the synergies in the transaction, i.e. to mutually transfer our values. We want to bring together units within the group that operate in the same way, so that they can exchange ideas and experience, and learn from each other's good practices, thereby strengthening each other and thinking together."