黑洞社区

Galliford Try twice walked away from negotiations with Miller over the purchase of its construction division in a bid to secure a bargain price, 黑洞社区 understands.

Galliford Try this morning announced the acquisition of the 拢410m-turnover loss-making Miller Construction business without having to outlay any cash, as the purchase price of 拢16.6m is offset by 拢23m of cash on Miller鈥檚 books which will transfer with the deal.

Miller has been looking to offload its construction division in advance of a planned flotation, with Miller likely to achieve a higher valuation as just a housing business.

A source close to the deal said: 鈥淢iller needed to sell, but Galliford didn鈥檛 need to buy and they have done a very good deal off the back of that.鈥�

Cenkos analyst Kevin Cammack said the deal 鈥渄oes on the surface look like a knock-down price.鈥�

Announcing the acquisition, Galliford Try chief executive Greg Fitzgerald said the deal had been 鈥渁chieved at a very good price鈥�.

Galliford 鈥榳alked away鈥� from deal

黑洞社区 understands that after being approached by Miller鈥檚 advisors, Galliford Try baulked at the initial valuation, with Miller then coming back with a lower valuation for the business.

After entering exclusive talks it again walked away following due diligence, only to return to the negotiating table and conclude the deal.

Galliford Try鈥檚 construction division chief executive Ken Gillespie refused to say Galliford had picked up a bargain, but said: 鈥淢iller had drivers for the sale from their side which created an opportunity for us.鈥�

Gillespie said the deal allowed Galliford to meet its expansion plans for its construction business overnight, by adding 拢410m in turnover.

The acquisition doubled the firm鈥檚 order book to 拢2.8bn, and allows it to grow construction turnover to 拢1.5bn by 2018. It currently reports revenue of just over 拢900m.

The chief executive of 700-strong Miller Construction, Chris Webster, will not transfer with the deal and will remain with the Miller Group.

The rest of Miller Construction鈥檚 senior team will join Galliford Try, with some due to take places on the Construction Investments divisional board. Galliford said it would incur 拢4m of one-off costs to integrate the business, generating cost savings of 拢7m a year, but Gillespie said none of these savings would come by cutting operational staff.

鈥淲e will look at savings in back office staff where you鈥檇 expect,鈥� he added.

Acquisition about growth

Gillespie said the decision to purchase Miller was 鈥渁bout growth鈥� for the business and represented an excellent strategic fit.

He said Miller would give Galliford Try an entry into the lucrative health sector because of its position on the Procure 21+ framework, and a similar position in defence given its role on Ministry of Defence frameworks, both markets that Galliford had struggled to enter.

He said there was only one framework - for the Ministry of Justice - on which the two firms both had a place, meaning there was no danger of combining the two firms leading to cannibalising of revenue streams.

鈥淭here鈥檚 next to no overlap in terms of frameworks or in terms of work we鈥檙e bidding,鈥� he added.

Miller reported a loss of 拢4.6m in 2013, which according to its annual report was due to 鈥渨rite-downs on a limited number of historic contracts which had been procured competitively on the basis of price鈥�.

鈥淭hese projects encountered cost overruns as a result of operational issues, insolvency of subcontractors and difficulties in recovering the cost of client variations to project specifications,鈥� the firm added.

Galliford said in a statement that Miller restructured or exited its loss-making contracts last year and is on course to return to profit in 2014.

Gillespie confirmed that all liabilities for existing contracts have transferred with the deal, but said he was confident that Miller had made adequate provisions to cover the problems on these contracts, and that its focus over the last couple of years on framework contracts and long-term clients meant that there would not be further problems.

鈥淚 led the due diligence myself, and took my top team in to do it. These issues we鈥檝e been through and I鈥檓 confident that these problems are well provided for,鈥� he said.

Galliford said the deal would add to profit straight away, even counting for the 拢4m it will spend restructuring the business.

However, analyst Kevin Cammack said that despite the low price, it was too early to say whether the deal was good news for Galliford Try.

He said: 鈥淥n one hand Galliford seems to have got a good deal, but you have to ask why no-one else in the market wanted this business. There have been plenty of deals in the past, such as Carillion buying Mowlem or Morgan Sindall buying Amec, that have looked good value but you haven鈥檛 seen great value creation.

鈥淵ou only know whether the deal is cheap when the existing contracts have worked through.鈥�

The sale leaves Miller Group with a 拢400m turnover housing, development and mining business.

The firm has confirmed it is conducting a strategic review with a possible stock market flotation on the cards.

Philip Bowman, chairman of the Miller Group, said: 鈥淭he acquisition of Miller Construction by Galliford Try will 鈥� enable the Miller Group to concentrate all its efforts on expanding its property interests now that the housing and commercial property markets are again showing strong signs of growth.鈥�

Cammack said: 鈥淔rom Miller鈥檚 point of view you can argue that they鈥檝e sold this business at the lowest point in the market simply to ease the way for their flotation. If they don鈥檛 manage to get the float away it will be incredibly embarrassing.鈥�