Rivals Costain and May Gurney were immediately identified as potential targets, as both firms' market capitalisations value them in the region of Balfour Beatty's equity placing.
Costain's current market capitalisation is £175M and it is debt free, making it the most affordable. The firm would be attractive to Balfour Beatty as it prepares to start work on the £5bn M25 widening contract.
Costain was a losing bidder as part of the Flow consortium. It has turned around its financial performance in recent years and in 2007 saw all of its operations in profit for the first time since 1990, allowing it to pay a dividend for the first time in 17 years.
Its order book stands at £1.6bn and it has recently secured a major contract at Felixstowe port and extended its framework deal with Southern Water to 2015.
May Gurney would be more expensive at £201M but it more closely matches Balfour Beatty's current UK strategy of making regional acquisitions. In the last two years the firm has snapped up the predominantly south and south-west based Dean & Dyball and the north east based Birse. May Gurney operates mainly in east England.
May Gurney also holds a framework deal with Network Rail, a major client for Balfour Beatty. Its forward order book is in excess of £1bn and in the last financial year saw turnover exceed £400M for the first time.
Balfour Beatty would not comment on the speculation but in a trading statement last Thursday Balfour Beatty chairman Sir David John confirmed that acquisition remained central to its plans.
"We anticipate that order intake and trading performance will remain strong during the course of 2008 and that we will continue to add to our long-term earning power through investment and acquisition."
John said the proceeds of the equity placing would be used to "deliver incremental growth through additional bolt-on acquisitions and organic growth opportunities".
He singled out investment and acquisition opportunities in UK regional contracting, upstream professional services, infrastructure investment and in its US businesses.
Analysts told NCE that a move for either company made good business sense.
"You don't build up a warchest without some solid targets in mind, and the people who have given them that money will have wanted to know some definite targets," said KBC Peel Hunt analyst Geoff Allum.
Industry sources said that both firms were ripe for takeover.
"We definitely expect Costain and May Gurney to be acquired at some point this year. Costain has been vulnerable for some time and May Gurney has been fattened up nicely. The question is who buys them," said one.
A Costain spokesman denied that it was about to be bought.
"We do not comment on market speculation but to the best of our knowledge it isn't the case. The company is going about its business executing its business strategy of "Being Number One". May Gurney was unavailable for comment.
Balfour Beatty's UK Acquisition trail
Would fit Balfour Beatty’s policy of making regional acquisitions
Cheaper than May Gurney and has motorway widening expertise
2008 Blackpool international airport £14M
2008 Dean & Dyball £45M
2007 Covion £33M
2007 Cowlin Group £52M
2007 Exeter International Airport £60M
2007 Pennine Group £8M
2006 Birse Group £32M
2003 Mansell £42M