M&A activity took off in 2014 and the scale of deals and proposals reached a level unprecedented in recent years as the biggest contractors and consultants targeted market dominance through mega mergers.
The biggest merger story was the one that never was: the on-off saga of talks between the UK’s two biggest contractors, Balfour Beatty and Carillion.
The contractors shocked the industry when they revealed in late July that Carillion had made a move on Balfour Beatty. For the next four weeks there was talk of little else, before Balfour Beatty rejected three successive offers from Carillion, the final one valuing their target at £2.086bn.
The deal may be off the table for now, with Carillion unable to make another advance until February 2015, but some analysts expect the synergies between the two groups to lead to further talks next year.
The mega merger
Also in July, Aecom made its £2.3bn bid for URS, eventually creating an £11bn-turnover firm with “unsurpassed capacity”.
This was the year’s biggest merger in the sector, and later that same month, the consultant acquired US-based £707m-turnover Hunt Construction.
The appetite for M&A in the industry extended beyond these mega deals, though, with most of the UK’s top 20 contractors expanding into markets through acquisitions during the course of 2014.
Analysis of contractors’ cash balances by KPMG in September found that the financial position of many contractors remained weak due to low margins.
However, contractors were selling off assets, mainly PPP and PFI investments, to generate cash and fund business growth.
In February, Interserve announced it would buy Rentokil’s facilities management business, Initial Facilities, for £250m to strengthen its market position and increase offered services, and it has ended the year with another acquisition, of skills provider the Employment and Skills Group.
Then in March, Laing O’Rourke bolstered its offsite manufacturing capability with the acquisition of Glass Reinforced Concrete UK, a Yorkshire-based firm which it said would allow the group to deliver specialist engineering contracts requiring glass-reinforced concrete on large building and infrastructure schemes.
Also in July, Galliford Try acquired loss-making Miller Construction for £16.6m, giving it a foothold in acute healthcare and defence, and allowing it to achieve its four-year revenue target “almost overnight”.
In November, Wates acquired £30m-turnover Walsall-based Purchase Group as part of a move to target expansion in the response maintenance sector in the Midlands and the north of England.
The year ended with Kier announcing in early December that it was in talks with £388m-turnover consultant and contractor Mouchel over a potential takeover.
Consultants also engaged in M&A deals throughout the year as consolidation in the sector continued apace.
In July and August, Dutch consultant Arcadis battled Japanese firm Nippon Koei for British Engineering firm Hyder, which it eventually acquired for £296m in October.
Balfour Beatty pressed ahead with the sale of its US consultant Parsons Brinckerhoff, which was acquired by WSP Global for £820m in September. Engineering consultant Atkins lost £4.5m on its failed bid.
In 2014, contractors and consultants have engaged in M&A to position their businesses for the upturn: acquisitions have enabled them to expand into markets and services they expect to grow in 2015, while synergies allow them to target efficiency savings in shared operations.