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City Site - Corporate deals are a sign of health


WITH the FTSE 100 breaking the 6,000 barrier, the pace of corporate activity in the industry seems to be quickening.

As well as the agreed £5 billion take over of Corus by Indian group Tata Steel, the past week has seen a flurry of deals including Gleeson's disposal of its engineering arm, SIAC Construction's purchase of Bison Structures and White Young Green's acquisition of project management consultancy Trench Farrow.

Despite having to pay more for businesses and assets, dealmakers are traditionally encouraged by rising stock markets, not least as buyers can use their own shares more easily on deals. Rok's recent purchase of Scottish contractor Tulloch and White Young Green's latest deal both involved significant equity elements.

Buyers are also encouraged by prospects for the industry's workload - reinforced this week by the award of the £336 million East London line contract to a Balfour Beatty/Carillion joint venture.

Meanwhile, sellers are tempted by the healthy valuations on offer. Gleeson's sale of its engineering division to Black & Veatch for almost 13 times operating profits highlights the premium prices which now attach to water-related businesses.

But, Corus aside, most deals have involved bolt-on acquisitions or deals which fill in geographical gaps - as with Balfour's purchase of Birse - rather than the large mergers that have been seen towards the top of bull markets in the past. Aside from the buyout of McCarthy & Stone, house building deal activity has involved quoted hybrids such as Kier and Galliford buying niche private firms, rather than major bids within the sector.

Companies that are selling, which potentially include Amec, are tending to make disposals, rather than seek outright buyers. In the long term the industry should benefit from this continued restructuring.

But the prospect of any UK combinations emerging to create major international companies to rival the Continental or US groups seems as remote as ever.