The UK’s Kier Group has entered into a conditional agreement to buy the entire issued share capital of Mouchel.
The deal was mooted at the end of last year as preliminary discussions between the two companies were said to be under way.
In August 2012, Mouchel, which provides repair and maintenance services to the UK strategic road network and is an international infrastructure and business services group, was acquired by its management and lenders – banks RBS, Lloyds and Barclays – a move that was said at the time to secure the future of the business.
Mouchel was incorporated into a new, de-listed company, MRBL, after its shareholders rejected an alternative restructuring plan that would have seen its lenders swap £87 million (€121.42 million) of existing debt for a majority stake in the company.
The company had previously rejected takeover offers from Interserve and Costain.
Kier has now agreed to buy the entire issued share capital of MRBL for a total consideration of £265 million (€369.82 million) to be financed by a £340 million (€474.47 million) fully underwritten rights issue.
Mouchel provides advisory, design, project delivery and managed services to the highways and transportation, local government, property, emergency services, health, education and utilities markets in the UK, the Middle East and Australia. It claims to be the leading provider of repair and maintenance services to the UK strategic road network.
Kier said the combination of its business with Mouchel brought together Mouchel’s leading position in strategic highways services with Kier’s presence in the local authority roads market, and created a sector leader in the growing UK highways maintenance and management market.
It said the acquisition positioned Kier to benefit from the UK government’s new Road Investment Strategy (RIS) which sets out a long-term investment plan of £17 billion (€23.73 billion) of total expenditure on the maintenance, renewal and enhancement of the strategic road network from 2015 to 2020, with annual expenditure increasing from £2.9 billion (€4.05 billion) to £4.1 billion (€5.72 billion) over the same period.
The Kier board said it believed that the strategic rationale for the acquisition was compelling and was aligned to Kier’s Vision 2020.
The proceeds from the rights issue will also be used to repay Mouchel’s net debt at the time of the acquisition, finance the integration costs of the acquisition, and pay the costs and expenses associated with the rights issue and acquisition.
Mouchel reported group revenue – including shares of joint ventures – of £616.6 million (€860.44 million) and underlying operating profit of £27.7 million (€38.64 million) for the year ended 30 September, 2014.
Revenues for the three months ended 31 December, 2014, were said to have increased by 38% compared to the same period in the previous year.
Kier said the acquisition was expected to deliver pre-tax cost synergies of approximately £10 million (€13.96 million) in the financial year ending 30 June, 2017, with integration costs of the acquisition expected to be approximately £17 million (€23.73 million).
The acquisition is conditional on the approval of shareholders.
Haydn Mursell, chief executive of Kier, said, “Over the last three years, Mouchel has been transformed into a strong business with market leading positions. The combination of Kier and Mouchel, particularly in the provision of UK highways maintenance services, creates a leader in a growing marketplace.”
Grant Rumbles, chief executive of Mouchel, said, “Kier and Mouchel are an excellent fit. The enlarged company will enable us to improve our offer to customers and to enhance the career opportunities of our employees.
“This deal is testimony to the successful turnaround of Mouchel following its 2012 restructuring. Refocusing the business on its core strengths and targeting profitable growth has brought us to a position where our order book is now more than £2.8 billion (€3.91 billion).”