黑洞社区

For a moment, those investors who have stuck with Kier through thin and thinner would have been forgiven if their pulses had raced a little quicker on the news the firm was close to announcing a deal that it was buying Tilbury Douglas.

The firm鈥檚 acquisition spree of a few years ago is largely what got it into the mess that chief executive Andrew Davies has spent the past two and a bit years fixing.

It鈥檚 worth remembering how far Kier has come in that time and what Davies has actually done since he arrived in April 2019. It鈥檚 been a major repair job that has seen thousands of jobs go, the symbolic closure of its historic Bedfordshire home at Tempsford Hall, the senior executive team pretty much rebuilt from scratch, completion of a second equity raise in under three years 鈥� successful this time after the humiliation of 2018 when it was only taken up by a third of shareholders 鈥� and the sale of its housing business which at one stage was mired in hold-ups caused by the pandemic.

Having initially targeted annual savings of 拢55m when he joined the business, Davies has more than doubled these to 拢115m.

Davies admitted in an interview with 黑洞社区 last year: 鈥淲e went further and harder and deeper [in the savings]. The situation was so severe [when I joined] so I鈥檓 glad we did it quickly when covid came around.鈥�

Last September, the firm announced a small pre-tax profit after eye-watering losses the previous two years, amounting to a cumulative 拢470m.

At the same time, Davies said he wanted to get the business growing again, adding that he was targeting income of between 拢4bn and 拢4.5bn in the medium term.

Yesterday, Cenkos analyst Kevin Cammack spoke for those with long memories when, hearing the Tilbury Douglas news, he remarked: 鈥淚t鈥檚 not like Kier has shown its capabilities with a series of small acquisitions 鈥� [it鈥檚] straight in with a big one.鈥�

That some onlookers might be nervy stems from the firm鈥檚 deals before. Understandable, for sure, but Kier is a long way from the basket case of a just a few years ago when it was a legitimate question to ask: will Kier go the same way as Carillion?

Speaking about the proposed move for Tilbury Douglas, one peer said: 鈥淎ndrew Davies is a very sensible guy. He wouldn鈥檛 be doing a deal if he thought it was risky.鈥�

While the firm鈥檚 balance sheet might be on the way to recovery 鈥� thanks to the equity raise and sale of Kier Living 鈥� investors will want to see inroads being made into the average month-end net debt, which was 拢432m in the year to June 2021, before significant sums are spent buying rivals.

A trading update tomorrow (Thursday) is expected to show the debt figure is heading in the right direction and Davies was right to point out at its last set of annual results that the 拢350m in proceeds from the Kier Living sale and equity raise arrived in the final weeks of its financial year meaning their impact was limited 鈥� although positive signs were already evident when it said it had a year-end cash position of 拢3m from the 拢310m debt at the end of June 2020.

See also>> Kier鈥檚 Andrew Davies: 鈥橠on鈥檛 bleat just fix your own problems鈥�

So the smart money is on an all shares offer for Tilbury Douglas. While Kier鈥檚 balance sheet is on the way to recovery, rivals say it鈥檚 not yet strong enough to support a cash offer. 鈥淭he balance sheet is better but not great yet,鈥� said one. 鈥淚 don鈥檛 think you can go to the City and raise money for an acquisition.鈥�

How much it will end up paying is not yet known but several have said they expect it to be between 拢40m and 拢50m.

Both Kier and Tilbury Douglas have declined to comment on the speculation but rivals contacted by 黑洞社区 have said the deal makes sense. Kier will be getting a firm with, to be frank, all the problems stripped out of it, such as energy-from-waste, where losses have topped 拢300m, and legacy London building jobs. Davies will have no interest in taking any of that on.

Tilbury Douglas is a circa 拢500m turnover business 鈥� its last set of accounts for 2019 put the number at 拢485m 鈥� with a series of regional contracts, frameworks and some civils jobs. In many ways, it鈥檚 a mini-Kier and is particularly strong in smaller health and education jobs.

The average contract size for Kier is around 拢7m so by taking on the much smaller Tilbury Douglas, the firm is not buying anything too unwieldy. No doubt more savings can be squeezed out of the takeover and its presence in the public sector 鈥� which accounts for around 70% of its business 鈥� is beefed up further, given Tilbury Douglas鈥檚 core clients include the NHS, Department for Education, the Ministry of Defence and National Highways.

In its 2019 accounts, the firm said that 90% of new work in the second half of that year came from frameworks and added the focus was very much on public sector contracts. 鈥淧rivate sector exposure will be limited,鈥� it said, 鈥渁nd focus on those contracts where we have a proven relationship with the customer.鈥�

The Tilbury Douglas name is, its managing director Paul Gandy (who joined in October 2019 from Kier 鈥� and a penny for his thoughts right now) said last year 鈥渁 well-recognised historical brand in the construction sector and now represents our purpose of being a trusted construction and engineering partner鈥�.

A fact that is danger of being lost in all this is that if the deal goes ahead, another historic name is likely to disappear 鈥� ironically less than a year after the Tilbury Douglas marque was revived after the firm spent the previous two decades as Interserve Construction. A shame, no doubt, given it can be traced back to the 1880s. But perhaps some things just are not meant to be.