Exclusive: Costain chief executive Andrew Wyllie has insisted he has no regrets about standing firm in his May Gurney valuation, after Costain was outbid by Kier for the support services company.
Mr Wyllie told Construction News that winning any bid at the wrong price is “one of the easiest mistakes to make in this industry”.
But he admitted that “speed is of the essence” to ensure Costain can grow and innovate to meet the demands of major clients.
In his first interview since May Gurney’s board announced it was backing Kier’s counter-bid for the firm (see box), Mr Wyllie said: “A bit like winning a project, it’s the outturn performance that counts. And if we don’t think it’s the right deal for Costain we won’t do it, at any price.
“If I get criticised for taking the right value judgement, then so be it. If I get criticised for having ambition for the Costain organisation and we don’t secure every opportunity we go for, well so be it.
“But I still think it’s the right thing to do.”
The group announced today it had incurred transaction costs of approximately £4m (pre-tax) associated with the May Gurney proposal.
“If I get criticised for taking the right value judgement, then so be it…but I think it’s the right thing to do”
Andrew Wyllie, Costain chief executive
Mr Wyllie said the £934m turnover (including joint ventures) company is “unrecognisable” from the one he joined from Taylor Woodrow in 2005, in both financial strength and services, as a result of targeting big spending clients and both organic and acquisitive growth to meet demands for a consolidated, “premier league” supply chain.
Responding to comparisons with an unsuccessful bid for consultancy Mouchel in 2011, which later went into administration and now trades as a private firm, Mr Wyllie said his team had looked at “lots of potential acquisitions” and that the two deals were “completely different in their structure”.
“[With Mouchel] we took a value judgement, and I think history probably proves that was the right judgement. And the second one [May Gurney], was a recommended deal by both boards.
“We also bid for lots of multi-hundred-million-pound projects and we don’t win all of those either.
“[With Mouchel] we took a value judgement, and I think history probably proves that was the right judgement”
“That doesn’t mean you shouldn’t look at opportunities to implement the strategy and have very clear criteria. And we’re not going to shift our criteria, because you live with the consequences of these decisions for a long time, and I take my responsibilities for the Costain brand very, very seriously.”
Asked if bidding for both firms and coming away with neither was of detriment to the Costain brand, he said: “Absolutely not. First of all we’ve talked to many more companies than two – and we’ve also done two successful transactions [in 2011] because we’ve been very patient and we’ve got it right when we do it.
“Five years ago we would not have had the ability to finance and structure a quarter-of-a-billion-pound deal at Costain. Today we have, we know that. But again, we’re not going to do it at any price.”
“You live with the consequences of these decisions for a long time, and I take my responsibilities for the Costain brand very, very seriously”
He said he had “no regrets” over not increasing their 253.22 pence per share offer for May Gurney, that it wasn’t in his shareholders interests and that he has received “a lot of positive feedback” on the decision.
“It could have been a good transaction at the right price, but what we’re not going to do – because it’s one of the easiest mistakes to make in our industry – is to win work at the wrong price,” he said.
However, he conceded it “would be wrong to say I don’t have any regrets” about losing out altogether due to the “potential” of the deal.
Asked what was the differentiator, after Kier’s proposal valued the firm at £221m compared with Costain’s £178m, Mr Wyllie said “it was only the price”.
He added that he “would not be comfortable” taking forward a bid without investing “many months of detailed due diligence”.
Asked if the exclusivity of the Costain/May Gurney talks between November and March brought into question the value of Costain’s offer, he said that was for May Gurney to answer, but stressed discussions had been “very professional”.
Mr Wyllie could not say if there is another company the size of May Gurney in his sights that could offer similar “double-digit-enhancing earnings” but he added: “We want to grow, we need to grow; we know what the customer trends are and what they’re looking to procure.”
That means continuing to move from 29 per cent of support services revenue to a 40 per cent target, driven by customers demands, and achieved through recruitment, organic and acquisitive growth.
He added: “What we know is that we’ve got the ability to do something of a May Gurney size, should we choose to do it – and we are looking at a number of opportunities today.”
“What we know is that we’ve got the ability to do something of a May Gurney size, should we choose to do it - and we are looking at a number of opportunities today”
“We have continued looking at a number of other [acquisition] opportunities and what you can expect in the medium term is to be reading about other acquisitions that Costain has done, like the two we did in 2011”, he said.
Mr Wyllie said the other thing changing very rapidly, because of the consolidation of the supply side, is a series of organisations refocusing and divisions being put up for sale, which he said is set to continue over the coming two years.
“What you can expect in the medium term is to be reading about other acquisitions that Costain has done, like the two we did in 2011”
“It’s very difficult to fight the fight on a number of fronts; it’s very difficult to be a conglomerate in this market.
“Just looking at a snapshot of today of what’s available does not inform what’s going to happen over the next 18 months,” he added. “There’s a lot of rapid change that’s going to take place, which makes it very exciting.”
But he said “nothing’s changed between now and November” in terms of what is expected of him as CEO - including providing a service to customers, return to shareholders and opportunities to the supply chain and workforce.
“That pressure hasn’t changed between now and six months ago,” he said.
Mr Wyllie said the board assess him on whether Costain “is making progress and the results are better than most in the sector”, and pointed to indicators including a 16 per cent increase in profit before tax in 2012, more than £100m of cash, no debt and increased dividend for the sixth year running.
“I’m not planning on going anywhere, we’ve got great opportunities in the Costain group”
“That’s what I get measured on. Like all managers it’s the results at the end of the game. I’m not planning on going anywhere, we’ve got great opportunities in the Costain group,” said the CEO, who also pointed out that he was at Taylor Woodrow for 20 years.
“I make no apologies for having serious ambition for Costain.”
‘Speed is of the essence’
Costain needs to “move fast” to keep customers, shareholders and its workforce happy, according to Mr Wyllie.
Mr Wyllie said the firm is already expanding in highways technology, rail electrification and maintenance, carbon gasification and plasma vitrification to deal with nuclear waste, along with technologies in the water sector.
He said “the big spending in highways in the next five years is around technology, not in concrete and blacktop”.
“Speed is of the essence here; and that’s where technology and innovation comes in,” he told Construction News.
Innovation is the focus of the firm’s “Engineering Tomorrow” initiative, set to be launched at its AGM today, and supporting a strategy to enhance their services to clients every year.
“May Gurney could have provided some further enhancements [to services],” he said. “On the basis that’s not going to happen, then we enhance the service in other ways as we have done over the last five years.
“How we get there will change all the time; which bids we win, which bids we lose; which acquisitions we do, which acquisitions we don’t.”
Costain May Gurney – what could have been
Costain first announced its intention for an all-share takeover of May Gurney on 27 March, with plans to create a £1.6bn infrastructure and services company.
It priced May Gurney’s shares at 253.22 pence, valuing the firm at £178m.
The next day, Kier announced its interest in May Gurney, saying it had been trying to open discussions for a number of months before embarking on due diligence.
On 24 April, Kier and the May Gurney board announced a tie-up that valued the firm at £221m and was said by analysts to be a “knock-out bid”.
The next day, it was announced that Kier had won the backing of May Gurney’s key shareholders, representing 27 per cent of the company.
On 27 April, Costain CEO and chairman David Allvey inist their offer “fully reflected the value of the [May Gurney] business”
Costain’s share price was at 272 pence this week, having climbed to 306 pence at the end of March.