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Kier to buy Mouchel for £265M cash

Haydn Mursell

Kier’s chief executive Haydn Mursell has taken the next step in achieving his target of double digit growth for the business by buying infrastructure and business services organisation Mouchel for £265M, paying in cash for the entire issued share capital of the company. 

Kier is funding the acquisition through raising additional equity and the transaction will require the approval of its shareholders. The process is expected to take approximately five weeks and as a result, the acquisition is expected to complete in June.

Mouchel’s chief executive Grant Rumbles will leave on completion of the deal and Mursell will be CEO of the expanded group.

Rumbles has overseen a remarkable turnaround of Mouchel since he joined in 2011. The previous administration had rejected various bids the last of which valued the business between £151M and £175M. The firm went into administration, delisting from the stock exchange and has gradually transformed its fortunes.

“Kier and Mouchel are an excellent fit. The enlarged company will enable us to improve our offer to customers and to enhance the career opportunities of our employees” - Rumbles

Its purchase by property, residential, construction and services group Kier follows a transformation in Mouchel’s performance during the last three years which has seen the group grow underlying operating profit to £27.7M on turnover of £617M in the financial year ended 30 September 2014. Revenues for the three months ended 31 December 2014 have increased by 38% compared to the same period in the previous year, with growth levels continuing this year at maintained margins.

“The Mouchel Board believes that Mouchel and Kier together will provide even greater opportunities for our staff and clients. The combined company will be a sector leader in the growing UK highways management and maintenance market, servicing Highways England, Transport for London and local authorities,” the company said.

“The transaction will also enhance the range of facilities management and business process outsourcing services that the enlarged group can offer to local authority clients, as well as those in the water and regulated industries market,” it added.

On completion of the transaction Rumbles will stand down.  Mursell  will be CEO of the expanded group.

Kier takeover “all about the right fit”, says Mouchel boss Grant Rumbles - interview: what finally pushed the deal over the line.

“Kier and Mouchel are an excellent fit. The enlarged company will enable us to improve our offer to customers and to enhance the career opportunities of our employees,” Rumbles said.

“This deal is testimony to the successful turnaround of Mouchel following its 2012 restructuring. Refocusing the business on its core strengths and targeting profitable growth has brought us to a position where our order book is now more than £2.8bn. For that I thank my excellent management team and all of our staff for their hard work and determination over the last few years.”

“I will remain in the business until the transaction completes. Although I will be sad to be going, I am pleased to be leaving the business in such great hands.”

Last year Rumbles won the ACE European CEO Sterling Award, given in recognition of an individual who has made a major difference transforming a business. Mouchel was NCE/ACE Consultants of the Year winner in the major UK consultant category last month.

"The combination of Kier and Mouchel, particularly in the provision of UK highways maintenance services, creates a leader in a growing marketplace" - Mursell

Mouchel effectively put itself on the market when it hired Rothschild in the summer and Kier made an approach just before Christmas.

A services business like Mouchel, with a strong presence in the highways sector and maintaining around a third of the Highways England network just as the £15bn English roads bonanza is about to kick in, had obvious appeal. Add to that margins of around 5%, solid contracts overseas in the Middle East and Australia and 6,500 staff who, with personnel a high value currency in a growing skills shortage, have their own glamour. 

“Over the last three years, Mouchel has been transformed into a strong business with market leading positions. The combination of Kier and Mouchel, particularly in the provision of UK highways maintenance services, creates a leader in a growing marketplace.  The acquisition is consistent with and accelerates the delivery of our Vision 2020 strategy and will provide compelling value to shareholders,” Mursell said.

Kier's revenues were up 51% to £3bn following the acquisition of May Gurney and underlying pretax profit was up 54% to £73.1M in the last full year figures. The company earned over half its revenue in construction with a  margin of 2.1%. But tellingly just over 30% of its revenues came through its services division with a margin more than twice that of construction of 4.8%.

Half year figures to the end of December 2104 were turnover: £1.583M up 11% from £1.432M in the previous half year; and pretax profit £35.9M, down 2% on £36.8M. Margins in construction were maintained 2.1% bu fell to 4.2% in services “reflecting mobilisation of larger, long-term contracts and expensing bid costs of recent contract successes.”