Last year’s warning from industry leaders to merge, be acquired or go under may have seemed bold and frightening talk, but 2012 shows no sign that the underlying business prerogative of the last few years – get bigger to offer a one-stop shop or be bought – is about to change. Nor is the fact that there are some vulnerable firms out there.
The fateful warning was made by industry leaders at NCE’s Infrastructure Show in October as the fiscally-squeezed 2012 loomed. Their collective comments came soon after cost consultant Turner and Townsend predicted that 2012 will see a surge in insolvencies.
“Historically, as the construction industry starts to recover from a recession the number of insolvencies within the industry starts to rise,” it said. The year 2012 will become known as the year of insolvency.”
Chief of those has to be Mouchel, which started 2011 with a share price of around £1 and soon found itself in a tug of war between suitors Costain and Interserve. It starts 2012 in a very different place, with a new chief executive and chairman and a share price of just 5p.
Costain abandoned Mouchel and instead made smaller purchases in the form of ClerkMaxwell, the front end engineering support services provider, in April, and Promanex, the industrial support services business acquired, in August. It still has cash set aside for a big purchase.
In its trading update last week ahead of entering its close period the firm highlighted its strong cash position – it has in excess of £100M – and lack of significant borrowings. It added that it has further enhanced its contract bonding and banking facilities with its banks by £30M to £465M and extended them by two years to September 2015. “These facilities ensure the Group has the necessary financial resources to capitalise on market opportunities as they arise,” it said.
And there are other big fish out there hungrily looking to acquire smaller prey. Few are more acquisitive than Dutch giant Arcadis and Australian beast SKM. Chief executives of both have told NCE recently that acquisitions are firmly on the agenda in 2012.
As Arcadis chief executive Harrie Noy says this week: “We made two major acquisitions in 2011. We merged with EC Harris and we bought the remaining 50% shareholding in our Brazilian operation.
“Given that we see a lot of growth is in emerging markets we should further expand in these markets through acquisition,” he said, citing South America and Asia as particular targets. “These markets are expanding very rapidly and I think we need a stronger footprint than we have even after the EC Harris deal,” he said. Noy also stresses the ever-increasing importance of being able to offer global clients the complete solution.
My view is that we should combine all these types of expertise so that we can deliver the best schemes.”
Harrie Noy, Arcadis
“We are not developing a typical engineering company,” he stresses. “We are a professional services organisation that combines all disciplines to build high quality, sustainable lives. Engineering is just a piece. EC Harris is a quantity surveyor which has broadened into programme management. That’s another piece. My view is that we should combine all these types of expertise so that we can deliver the best schemes.”
SKM chief executive Santo Rizzuto also tells NCE that his firm is adopting a similar strategy, having bought environmental consultant Enviros in 2009 to complement its mining and buildings-led skills base.
“There is a strong drive for consolidation,” he says. “It is about how you strategically position yourself for a small number of large clients.”
For Arcadis and SKM these clients are principally huge multi-national mining firms. But big clients in the UK are also causing consultants and contractors to team up or merge in a bid to offer the best, cheapest, complete solution.
This move started six years ago, with Amey’s acquisition of Owen Williams creating a firm able to tackle all aspects of highways maintenance. It’s a move that’s proved highly successful, with the firm securing lucractive Highways Agency MAC contracts and, of course, the £2.7bn Birmingham Highways PFI.
Amey’s decision would have been influenced in part by the Highways Agency’s long-standing commitment to early contractor involvement, which plays to firms which can combine design and delivery expertise.
Balfour Beatty soon moved to ape this approach, snapping up US consultant Parsons Brinckerhoff in September 2009. At the time Balfour Beatty chief executive Ian Tyler said the acquisition was “a key step in becoming a global integrated leader in infrastructure services”.
In the UK highways market very formal, long-standing partnerships such as the AOne+ partnership of Colas, Costain and Halcrow and the EnterpriseMouchel joint venture regularly compete with the one-stop shops of Amey and Parsons Brinckerhoff.
But will these long-standing partnerships be able to stand up to these one-stop shop behemoths in the future?
The AOne+ team is now already working out what the recent acquisition of Halcrow by CH2M Hill will mean for its long term future – business as usual it says – and that deal remains the big one of 2011. There will unquestionably be more in 2012. Question is, who?