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Insight | The impact of takeovers on UK engineering

Hand shake

With two major takeovers of British engineering consultants in as many months, what does the sector’s future look like, and is further consolidation good for the industry?

One of the last three big independent British consultants, Atkins, is in the process of being bought by the relatively unknown Canadian company SNC Lavalin for £2.1bn, and only yesterday it was announced UK Waterman Group will be taken over by Japanese engineering firm CTI Engineering.

High profile acquisitions in the engineering industry have been going on for a number of years. American CH2M bought struggling British firm Halcrow in 2011, Canadian company Genivar acquired UK company WSP in 2012 which subsequently bought American consultant Parsons Brinckerhoff in 2014. Again in 2014, Aecom completed a £2.3bn mega-merger with URS.

But why so many mergers, and what makes the UK so attractive for overseas buyers?

Association for Consultancy & Engineering (ACE) chief executive Nelson Ogunshakin says the consolidation over the last 10 years has been driven by a number of things. Firms looking to build a diverse portfolio of businesses, increase their geographical reach, and spread risk are all factors.

Then why the UK market? Ogunshakin says the first investors came from America. They were looking for new opportunities to invest capital and the UK offered a good return on their investment.

“UK companies are perceived better,” says Ogunshakin. “They travel very well, they’re professional, they have strong integrity, transparency in the way they carry out business and the English standard and language is very good. So you can’t fault them.”

He also says the UK was seen as a “mother ship” for working in Europe, Africa and Asia.

Predicting the next player to come into the market is not hard says Ogunshakin. He thinks the industry will see a wave of investors coming in from Asian countries. He attributes this to the good returns that can be made, the expertise required for producing a successful Olympic games and entries into areas such as Singapore, Malasyia and Hong Kong where British companies are already well established, well known and trusted.

But while British expertise is valued, Manchester Business School professor of innovation management and strategy Bruce Tether points out that in most takeovers, the buyer tends to retain the higher, more influential positions. 

“This may mean there are a lot of people who made their career in Atkins who may now think: what happens to me now?” says Tether. “It doesn’t necessarily happen immediately, but in the longer run the buyer becomes increasingly dominant and the senior management will tend to be Canadian. 

“In a sense we’ll become subservient. A few years ago there used to be a big eight, but now there’s only two.”

Ogunshakin says to make a success of the merger, employees are the key people to reassure.

“When you do a successful acquisition you understand the killers, you understand in all businesses, that the cost of staff is about 70% so staff morale is extremely important.”

He says good communication with employees has to be paramount, with explanations about what the merger means for them, the benefits, the work changes and pension implications. The list goes on.

“Letting them know those issues is extremely important,” he says. “You don’t do that after the merger, you start to let them know immediately the deal is about to be closed.

“When it is closed, you communicate, communicate and communicate.”

The second issue is the company’s clients.

Again he says this is critical. The best he says, identify the key clients before the merger and talk to them as plans are developing.

“The real art of successful mergers and acquisitions these days is making sure what you do in your pre- due diligence stage is make sure the analysis of the target is perfect, that you understand the synergy and have a clear strategy of what is trying to be translated before you sign the deal.

“Once you’ve signed the deal, it’s really important that what you set out to do you don’t deviate from that. It’s about the communications strategy and engagement with the industry.”

However as for the future, he believes the industry has not completed its last merger just yet. But he is unconcerned about what that means for the future of businesses operating in the UK.

“That doesn’t mean it changes the footprint,” he states. “We’re still crying out for fantastic engineers because we still have the amazing projects like Crossrail 2, High Speed 2, Hinkley Point C –those projects are going to be built and we need engineers to build them.”

Readers' comments (1)

  • Nick Munro

    Personally, I believe that takeovers by foreign consultants will continue to dilute British engineering expertise and reduce our influence worldwide. I spent 33 years working overseas mostly with British consultants but that opportunity will not be available to employees of foreign -owned British based companies and they will be left to pick up the bits and pieces of small projects in UK while the lion's share will go to foreign companies' home offices. Let us hope that the few remaining British-owned consultants continue without being swallowed up and British companies are encouraged to grow.

    Nicholas Munro FICE

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