The newly black-owned construction company conceived from a R314-million sale agreement
between engineering and construction group Murray & Roberts (M&R) and black-empowered
Southern Palace Group aims to build on its 115-year heritage to become a “leading, Tier 1,
Infrastructure player in South Africa and in sub-Saharan Africa” by tapping into key opportunities
on the continent.
Firefly Investments represents the consortium that is acquiring the 115-year-old Murray & Roberts
Infrastructure & Buildings’ new businesses, which is led by the Southern Palace Group of
“Murray & Roberts Infrastructure & Buildings (MRIB) will provide an aggressive nimbleness to not
only Southern Palace’s portfolio but also the new developments and infrastructure services sector,”
enthuses Southern Palace Group of Companies CEO Lucas Tseki.
He suggests that MRIB, which will be rebranded in due course to represent its new ownership and
portfolio, can create significant opportunity to play a consequential role in the public-sector spend
that is planned for the further expansion of South Africa.
“Government constantly speaks about South Africa’s close to R1-trillion infrastructure programme
– we hope to participate meaningfully in that,” Tseki says.
South Africa’s public-sector infrastructure spending over the medium-term expenditure framework
period (from 2018 to 2020) is estimated to total R947.2-billion, according to Annexure D to the
National Budget review.
State-owned companies continue to account for the bulk of capital investment, spending a
projected R432.8-billion over the next three years, while provinces are expected to spend R198.2-
billion on infrastructure over this period. Municipalities are forecast to spend R179.6-billion over
Meanwhile, trends in public infrastructure spending indicate that between 1998/99 and 2015/16,
the public sector spent more than R2.5-trillion on infrastructure. The amount spent increased from
R48-billion in 1998/99 to R261-billion in 2015/16, resulting in an average yearly increase of 6.8%
after discounting inflation, according to the annexure.
Tseki highlights that the construction infrastructure spend by the private and public sectors has
been increasing, particularly public-sector spend over the past five years.
The company’s Africa-specific strategy includes its focus on being a prospective, but significant,
participant in the development of infrastructure in sub-Saharan Africa.
There is significant potential for collaboration with various governments to unlock the
infrastructure backlog, which spans the education, transport and healthcare, as well as the water
and sanitation, sectors, says Tseki.
“As Africa has to modernise, someone has to build the infrastructure. There is no reason why MRIB
cannot be a leader in these spaces,” says Tseki
Tseki suggests that the group could follow several projects of the developmental finance
institutions in South Africa, such as those of the Development Bank of Southern Africa (DBSA).
The DBSA recorded disbursements of R13-billion during the 2014/15 financial year, according to
the National Treasury’s 2014/15 annual report. The report also noted that the bank “continued
actively to seek infrastructure development opportunities in the region beyond South Africa, with
total disbursements of R618-million during the 2014/15 year.
“The DBSA, in this year alone, is spending more than R12-billion in funding infrastructure
programmes outside South Africa. This [spend] should be followed by [the services of] a South
African infrastructure services company,” Tseki says, arguing that, if an airport is built in Tanzania
with South African funds, for example, that airport must be built by South African infrastructure
Riaz Saloojee, Deputy Executive Chairman, that leads the new construction group, agrees, noting
that, as a Southern Africa business, the company aims to consolidate and grow its local position
and footprint to use as a platform from which to launch its Africa strategy.
Tseki avers that, if a company is to attract the best talent and the most innovative youngsters, it
has to demonstrate the ability to attract and acquire leading projects on the continent.
He believes that competitive advantages stemming from the new business’s strong financial and
operational capacity include the possibility to provide better pricing for projects, maintain a high-
margin business and maintain and/or improve cash flow.
An additional, significant value proposition from the acquisition will be the company’s ability to
assist clients in achieving good black economic-empowerment score cards in the construction
industry, Tseki asserts.
“We will certainly do very well. It is that benefit that we hope to pass on to customers, such as
real estate developers,” he explains.
With MRIB achieving 100% black-ownership transformation through a full-price acquisition, Tseki
argue that the transaction “is not some quasi-partial deal that may happen in the future for a
small percentage”. In terms of the agreement, M&R will sell 100% of eight of its infrastructure and
building divisions – M&R Buildings Gauteng, M&R Western Cape, M&R Infrastructure, M&R
Botswana, M&R Plant, M&R Developments, Concor Opencast Mining and Dynamic Concrete
Solutions (Namibia) – as well as its share in the Medupi Civils Joint Venture, to the Southern
Palace-led consortium. The consortium includes certain members of current MRIB management
and the Government Employees Pension Fund, which is administered by the Public Investment
Corporation. All management and staff employed at the MRIB divisions will remain part of MRIB
under the new shareholding structure. The new entity is expected to have an immediate order
book of about R6-billion, and employ about 4 000 people.
Saloojee, however, stresses that transformation in the construction industry not only
fundamentally starts with ownership transformation but also encompasses a broader agenda.
Key components of a “holistic” transformation include the aim to ensure operational excellence and
delivery, and a commitment to clients and key stakeholders, as well as a commitment to the
training and development of personnel and the upgrading of their skills, Govender avers.
Tseki adds that part of Southern Palace’s philosophy is that the best way to achieve transformation
is through the cultivation of prosperity and through growth.
Through this growth, prosperity and transformation, Tseki sees further opportunity to attract black
executives to the construction industry.
Saloojee, nevertheless, cautions that the transaction alone cannot transform the construction
industry. “We can ensure that we are transformed and we hope that, by the company becoming
transformed, others will see the opportunity and potential for the wider level of transformation that
is required in the industry,” he says.
While the conditions present for the transaction were met, Tseki claims that the acquisition’s
approval without conditions by the Competition Tribunal was a key milestone.
The group had also proposed a five-year restraint of trade against former parent company M&R.
Tseki had argued at the Competition Tribunal that MRIB had the right to use the Murray & Roberts
name for only one year after transaction close.
“That was a significant risk . . . we do not want M&R to acquire another construction company . . .
or M&R to be acquired by another company that is involved in the infrastructure services space
and start to compete with us,” Tseki states.
Despite this restraint of trade, he stresses the importance of retaining and commercially
maximising on the remaining industry goodwill towards M&R.
The reputation of the construction industry was tainted after findings of widespread collusion
culminated in 15 construction groups, including M&R, paying fines totalling R1.46-billion in 2013.
Southern Palace and MRIB’s transaction follows M&R’s participation in an agreement with
government, announced in October 2016, when the construction groups made various
commitments, including a promise to ensure “meaningful” transformation, in return for a
settlement of potential claims arising from previous transgressions of South Africa’s competition
laws, Engineering News reported last year.
“The truth is that, because of these transgressions, the construction industry has lost the trust of
public-sector clients. Part of the Southern Palace value proposition to MRIB, through this
transaction, is to rebuild that trust,” Saloojee concludes.