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Engineers merge to scoop PFI deals

FINANCE City Site

THE MERGER unveiled last week between Mouchel and Parkman marks a further step in the transformation of the leading consulting engineers as they shape up to take advantage of PFI and the outsourcing of public sector work.

The deal hardly creates a giant in the support services sector - the business will have a stock market value of around £190 million, compared with £341 million for WS Atkins and £1.6 billion for Capita.

But the combination will bring advantages of scale which should help the group to win larger outsourced contracts and bid for projects that involve a greater element of private sector investment, particularly on highways work.

If the merged group stays on track it should be able to make more acquisitions to expand its long-term managed services businesses. And the deal will give Mouchel a basis for moving into markets such as water and social housing management.

The merger is likely to be judged on how successful the business is in adding to its £700 million order book. For two firms which seem to overlap significantly - particularly in highways and infrastructure and other asset management - the proposed cost savings of £2 million a year seem relatively modest.

Yet the 19 per cent rise in Mouchel's share price last week suggests the City approves strongly of the terms and the logic behind the deal. In the past, the rhetoric of quoted construction-related outsourcing groups has not always been matched by results. The demise of Amey and the stumble which WS Atkins took last year both stemmed from over-ambitious expansion, although Atkins' fortunes are recovering.

The deal between Mouchel and Parkman seems to recognise that while there is no shortage of central and local authorities keen to outsource projects and services, growing profitably in the sector has become more difficult. And, while merging people businesses is always a delicate process, more deals can be expected as the sector begins to consolidate.