Better quality acquisitions in UK

By Sandy Guthrie13 October 2011

Mid-market deals have significantly boosted construction merger and acquisition (M&A) values in the UK during the third quarter of this year, according to business and financial adviser Grant Thornton UK.

The firm's Construction M&A Tracker, which looks at announced building and engineering, and construction materials deals in the UK, shows that total deal values reached £434 million in the third quarter, compared to £74 million in the second quarter, and £20 million at the same time last year.

Grant Thornton said this was despite the total number of announced deals during the quarter - at 23 - being down slightly on the 26 of the previous quarter and a figure of 24 for the third quarter of 2010. It said this indicated that better quality businesses were changing hands.

The deal numbers and values are non-seasonally adjusted and based on announced deals, which Grant Thornton said offered the most current view of the M&A market, although not all of these deals will be finalised. Grant Thornton Corporate Finance analysed Thomson Reuters data on 4 October, 2011.

Rupert Rawcliffe, corporate finance adviser to the construction sector at Grant Thornton, said, "Despite a general lack of economic confidence, the need to increase supply chain efficiency, with the associated removal of cost, is driving M&A activity.

"Businesses in the construction sector are also increasingly aware that scale is a critical factor to the end client. Accordingly, the trend towards sector consolidation is likely to continue in the foreseeable future."

He said there was a raft of sizable mid-market deals coming through. He pointed to the recent proposed acquisition of Halcrow, the sale of Redrow's Scottish division, and Wolseley's sale of Build Centre to Saint Gobain, which all helped to bolster the total deal value.

Mr Rawcliffe added, "This quarter's values are much higher than what we saw at the same time last year, albeit the low deal value then could partly be attributed to market players waiting to make their move until they heard what was to come in the government's spending review.

"Tight liquidity in the debt markets will constrain the number of mega deals, however, as seen with CH2M Hill's proposed acquisition of Halcrow, cash is available for the right deal. The close cultural fit between the parties and the ability of the combined group to meet better the global requirements of their customer base were the key drivers for this deal," said Mr Rawcliffe.

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