黑洞社区

BALFOUR BEATTY-PARSONS BRINCKERHOFF

• COMBINED TURNOVER PRE-MERGER*: 拢8.9bn (2008)
• COMBINED OPERATING PROFIT PRE-DEAL: 拢222m (2008)
• PRICE OF THE DEAL: 拢380m
• COMBINED TURNOVER POST-MERGER*: 拢10.3bn (2010)
• OPERATING PROFIT POST-DEAL: 拢207m (2010)

It鈥檚 hard to recall now but not so long ago, Balfour Beatty could do very little wrong. It was during those heady days in 2009, soon after the company had become the first contractor to enter the FTSE 100 in 15 years, that it announced the acquisition of US consulting engineer Parsons Brinckerhoff.  The acquisition entrenched the company鈥檚 pole position among UK contractors, while its declared strategy to diversify into a global construction and professional services company made sense to analysts. Balfour鈥檚 decision to keep Parsons Brinckerhoff as a distinct brand within the enlarged group meant that cost savings were not the key driver behind this acquisition. Balfour said that it would save a relatively paltry $8m a year in costs. Instead Balfour said it wanted to be able to offer a broader range of services and a stronger presence in the US, which it would have been hard pressed to build itself. Amid Balfour鈥檚 recent woes, Parsons has continued to perform well, which meant there were raised eyebrows when the US subsidiary鈥檚 sale was announced recently. However, Alastair Stewart, construction analyst at Progressive Research, argues that Parsons鈥� limited integration into the group means Balfour Beatty has never reaped the full benefits of its acquisition. One plus point with this though: it will be easier to sell Parsons.  

The analyst鈥檚 view: Tony Williams

Balfour Beatty (BB) bought Parsons Brinckerhoff (PB), in 2009 for 拢380m. Since then, PB has done well whilst BB has not (including a number of profit warnings and two changes of CEO). BB may now have to sell one of its crown jewels; an optimist might say, good job that it owns one.

GEORGE WIMPEY-TAYLOR WOODROW

• COMBINED TURNOVER PRE-MERGER*: 拢6.6bn (2006)
• COMBINED OPERATING PROFIT PRE-DEAL: 拢887m (2006)
• PRICE OF THE DEAL: 拢5bn
• COMBINED TURNOVER POST-MERGER*: 拢6.8bn (2007)
• OPERATING PROFIT POST-DEAL: 拢823m (2007)

The housebuilding sector was already in a fever following Barratt鈥檚 takeover of Wilson Bowden when George Wimpey and Taylor Woodrow announced plans in March 2007 to create the UK鈥檚 largest housebuilder. But the mega deal quickly turned sour as the newly merged company was forced to announce a 拢61m hit as a result of the crash in the US housing market, to which Wimpey and Taywood had both been heavily exposed. Things got worse during the following year as Taywimp鈥檚 share price plunged to just 4p. The company was only saved from collapse after it secured a 拢1.5bn refinancing deal from its banks. However, 鈥渓ike two drunks propping up one another鈥�, the merger, says Tony Williams of 黑洞社区 Value, helped one or both companies from being rubbed out during the depths of the recession.  The relatively straightforward nature of housebuilding mergers delivered 鈥渆fficiencies鈥� in the form of 700 job losses and the closure of four offices, including Taywood鈥檚 Solihull headquarters. And now, on the back of the wider housing market revival, Taywimp has returned to financial health. However, the combined entity is still building fewer homes than its parent companies were producing in the mid-2000s, suggesting that mergers in this sector have a wider social cost. 鈥淚t could be suggested that it reduces competition in the market place,鈥� says Stewart.

The analyst鈥檚 view: Kevin Cammack

Value for money? A big no, I鈥檓 afraid, but when you鈥檙e doing even a nil-premium 拢5bn merger off a highly geared balance sheet in a highly cyclical industry barely months before the top of the market in 2007, it鈥檚 the timing that kills you, not the concept or the integration or operational ability. Before a year was out the housing market had crashed and the TW share price had sunk below 10p (option money on its survival) from a post-merger high of 385p. A rescue rights issue (raising 拢510m) and 拢595m sale of its combined US housing businesses later, TW was able to stagger through to recovery. Since then, to be fair, under the blossoming stewardship of Pete Redfern, TW has more than held its own; profits this year are destined to surpass those of the last peak and its net return on invested capital (ROIC) will match or exceed the pro-forma level of 2007. Moreover it is now planning to start returning cash to shareholders. So managerially and operationally a success, I think, but value for money/shareholder value creation? Well, there but for the grace of God and the banks鈥�

CARILLION- ALFRED MCALPINE

• COMBINED TURNOVER PRE-MERGER*:  拢4.7bn (2007)
• COMBINED OPERATING PROFIT PRE-DEAL: 拢43m (2007)
• PRICE OF THE DEAL: 拢572m
• COMBINED TURNOVER POST-MERGER*: 拢5.2bn (2009)
• OPERATING PROFIT POST-DEAL: 拢63m (2009)

Carillion showed that it meant business about expansion in 2007. After its overtures to the Alfred McAlpine board were rebuffed, it launched the sector鈥檚 first hostile takeover bid in years for its rival. At the time, analysts were sniffy about the deal, a scepticism grounded in the larger company鈥檚 troubled takeover of Mowlem. Despite the exodus of a string of senior staff, McAlpine proved easier to swallow, with savings exceeding the original estimates presented to shareholders. Carillion鈥檚 cost savings reached 拢40m a year by the end of 2009, 拢10m more than anticipated. 黑洞社区 rated the Carillion/Alfred McAlpine tie-up as one of the five most successful deals of the noughties in its end-of-decade review, commenting that 鈥渋t looks to have been a shrewd move - it has given Carillion a strong presence in support services and civils鈥�.

The analyst鈥檚 view: Kevin Cammack

While I would describe Carillion鈥檚 purchases of Mowlem and EAGA as miserable from a shareholder return perspective, I would rate the McAlpine buy as 鈥渘ot unsuccessful鈥�, if that makes sense. The jewel in the crown was definitely Stiell which afforded a strong presence in FM /business services (financial sector) ahead of maybe the utilities maintenance business while Carillion was certainly able to extract full cost synergies (over 拢40m in the end) after its experiences with Mowlem. However, for 拢572m it is debatable whether this was a value for money transaction on a ROIC basis especially as by 2010 it was downsizing the group鈥檚 core construction business.

GENIVAR- WSP**

• PRICE OF THE DEAL: 拢278m

The 2012 tie-up between WSP and Canadian engineer Genivar reflected the change in the terms of trade between Canada and its former colonial master.  While Genivar was less than two-thirds the size of WSP in terms of staff numbers and turnover, the Canadian company had a market value of 拢516m - more than three times that of WSP鈥檚 拢166m at the time. WSP chairman Chris Cole was candid that it made sense to tie his firm to what he described as the 鈥減owerhouse鈥� Canadian economy - one of the few bright spots in the largely depressed developed world at the time. And this is a rare takeover that feels like a meeting of equals. WSP鈥檚 wider global presence means that the combined firm, while headquartered in Canada, has taken the UK company鈥檚 brand and Cole remains chairman of the combined company. Earlier this year, WSP acquired 50-strong Australian commercial tower work specialist engineer, Winward, helping to fulfil Coles鈥� stated commitment at the time of takeover to boost the company鈥檚 footprint in the Asia- Pacific region.

The analyst鈥檚 view: Tony Williams

Genivar, a Canadian company that no one had ever heard of, agreed to buy WSP at a knock-down price in June 2012 (435 pence/拢278m). It then changed its name to that of the target and since the deal closed (01/08/12), the share price of the new WSP (aka Genivar) has risen 70%.

* Turnover figures taken from 黑洞社区鈥檚 Top 150 Contractors and Housebuilders leagues (year in brackets).
** Combined turnover and profit figures not given because available financial information of the companies is not directly comparable.