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Kier completes £265m Mouchel acquisition

Kier’s deal to buy infrastructure group Mouchel for £265m has not been done to reduce the group’s cost base, its chief executive Haydn Mursell has said.

The contractor will finance the deal through a £340m fully underwritten rights issue.

The combined group will have an order book of £9.3bn as at 31 March 2015, including Kier’s order book of £6.5bn and £2.8bn of orders from Mouchel.

Mr Mursell said the deal would enable the enlarged group to capitalise on the £17bn of committed roads spending from Highways England, the government-owned company that replaced the Highways Agency at the start of the month.

He told Construction News: “Highways England has been established and their budget has been set in statute, which has highlighted five years of increasing spend on maintenance and capital works.

“It’s a chunky market and one we’ve been looking at for a long time.”

Mr Mursell said the deal would combine Kier’s market share of local roads maintenance work with Mouchel’s expertise in the strategic roads sector. He said this meant there would be “very little operational overlap”.

“This is not a cost base deal,” he said. “It’s very much about complimentary skills.”

Mr Mursell said there would be £4m of savings in the first year post-merger, followed by £10m in year two and every year thereafter.

“That’s relatively modest for a deal this size,” he continued. “There’s very little cost saving in operations because we like what they do and that’s what we’re buying.”

The £340m raised through Kier’s rights issue will be used to purchase Mouchel for £265m, with a further £36m committed to integration and deal costs, and £40m used to pay down Mouchel’s net debt.

Mouchel reported group revenue (including share of JVs) of £616.6m and underlying operating profit of £27.7m for the year ended 30 September 2014.

Revenues for the three months ended 31 December 2014 increased by 38 per cent, compared to the same period in the previous year.

Mouchel chief executive Grant Rumbles had admitted the door was open to a sale in an interview with Construction News last year.

That followed failed bids by both Interserve and Costain for Mouchel in 2011.

Mouchel was then sold to its banks and management team at in 2012 in a pre-pack administration deal that saved the jobs of its 8,000-strong workforce.

It returned to profit in 2013 and bought out Enterprise’s 50 per cent stake in EnterpriseMouchel.

The firm has since become one of Highways England’s preferred suppliers.

Mr Rumbles said today: “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 £2.8bn.”

Mr Mursell said that the management teams in Mouchel’s four operational divisions would remain at the combined firm, but it is expected that group-level executive and non-executive board members may move on from the company.

Chief operating officer Steve Bowcott will depart the Kier board on Thursday.

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