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Engineering consultants vulnerable to takeover bids

British consultants are takeover targets in an undervalued market, city analysts and engineers said this week.

"UK consultants are particularly undervalued at the moment, making them extremely attractive takeover prospects," said Geoff Allum, business analyst at investment bank KBC Peel Hunt.

"Companies like Grontmij and Jacobs are cash-rich and looking to expand. British consultants would give great opportunities for international expansion. As the market remains unstable, I would expect further market consolidation, but when remains a question. As the market
is unstable potential suitors will want to wait until it bottoms-out."

In a bid to secure itself against a hostile takeover, Scott Wilson announced last week that had bought 1M of its own shares at 127p per share, with 75.2M shares remaining in issue. The bought-back shares will be given to staff in the form of share options and share awards.

Scott Wilson’s share price dropped by two-thirds in the past year, from a high of 317.5p in November 2007. The company recently became first consultant to be confirmed to work on Crossrail’s overland sections.

Capita Symonds managing director Jonathan Goring said until recently consultants had high valuations, with some firms being sold for 10 times earnings.

"There could be two reasons for this – certainty of work, which means less risk, or just aspirations," he said.

Following the overall crash in UK listed shares and the collapse of the housing market Goring added that a firm’s value, among many other things, now depended on how it is listed.

"Consultants listed under ‘construction’ on the Stock Exchange will a have low profit to earnings ratio (P/E), while those in support services will have a high P/E. Those listed under construction will have taken a big hit on their price," he said.

Goring said that now is a good time for a company to make opportunistic acquisitions and those companies waiting for a specific strategic acquisition could end up being disappointed.

"You want a company with strong management and a few really good ideas. If you wait until a company is on its knees, it will not be as good as it could be," he said.

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