Firms including Mears, Kier and Morgan Sindall will compete to take over Connaught’s contracts, with discussions over the firm’s work already underway.
Social housing repair and maintenance contractor Connaught this week became the industry’s largest victim of the recession after six weeks of negotiations with its bankers failed.
The £660 million-turnover firm entered administration on Tuesday evening, after a summer that saw its market value collapse by more than 90 per cent.
Given the perilous state the firm has been in recently, and the publicity surrounding the issues it faces, some clients had already put in place contingency plans.
Morgan Sindall chairman John Morgan told Construction News earlier this week: “We have received some calls from Connaught’s customers, who are looking to have a contingency plan in place should it go into administration.”
Mears Group chairman Bob Holt added: “We are the clear market leader in repair and maintenance so we will clearly be very interested in looking at its contracts.
“If something was thrown into the hat, that would be interesting. We are waiting to see what the outcome is.”
Kier chief executive Paul Sheffield also indicated that the firm would look to pick up contracts, although he thought it more likely these would be reprocured than sold by the administrator.
“We have received some calls from Connaught’s customers, who are looking to have a contingency plan in place should it go into administration.”
Morgan Sindall chairman John Morgan
Industry sources indicated to Construction News that they would not be interested in directly taking over Connaught’s contracts under their existing terms.
One senior industry insider said: “We will be looking at their contracts, as will others, but they will have to be renegotiated.”
Panmure Gordon analyst Andy Brown said: “Other firms will be looking at Connaught’s contracts but they will not want them on the terms Connaught agreed to.”
One senior industry source said: “The banks have the most to gain from letting them carry on and trade out of their current situation.
“If the administrators are called in, then work on their existing contracts could stop.”
This week’s developments followed a tumultuous few months for Connaught. The firm issued a profits warning in June, saying it had identified 31 contracts in its social housing division where capital spending would be deferred.
It said the deferrals would reduce revenue by £80m and profit by £13m this financial year. Connaught’s chief executive Mark Tincknell left the firm in July to recover from an illness, after having returned for a period of just six months.
It also announced that finance director Stephen Hill would leave in October. Construction News then revealed that a senior manager had sold shares in the firm, worth about £250,000, weeks before the profit warning was issued.
Connaught chairman Sir Roy Gardner brought in a big hitting team of ex colleagues from his days at Centrica but they have now lost their battle to save the firm from administration.
The firm, which employs 10,000 people and has about 180 multimillion- pound social housing contracts in the UK, has been in talks with its lenders for months.
Last month, Connaught’s bankers agreed an additional short-term overdraft facility of £15m, while also deferring interest and principal repayments on the company’s existing £200.6m overdraft facility until the end of August.
But as the firm entered September, the picture seems to have changed.
In a statement to the Stock Exchange on Tuesday, Connaught said: “The group now believes that the availability of additional funds from its lenders will not be forthcoming and, while it remains in discussions with other parties, the ability to provide an adequate solution to the funding issues the group faces has become increasingly uncertain.”
Emma Bridges, director at debt recovery firm Top Service, said the company’s subscribers were owed £1.5m by Connaught, and had been instructed to collect £150,000, of which it had successfully recovered £100,000.
She said: “Usually the trade creditors are the last to get paid.”