Analysis

Kier takeover “all about the right fit”, says Mouchel boss Grant Rumbles

Grant Rumbles, chief executive Mouchel

A deal to bring together Kier and Mouchel has been a long time in the making – Mouchel chief executive Grant Rumbles explains what finally pushed it over the line.

Announcement this morning that contractor Kier had agreed terms for a £265M take-over of consultant Mouchel brings to an end months of “will they-won't they” speculation over the deal.

For Mouchel chief executive Grant Rumbles it concludes a three journey leading a team to rebuild and transform the business ready for this next step in its 118 year history.

“Both companies have been very careful,” explained Rumbles reflecting on the discussions held of the past year. 

“There has been a lot of merger and acquisition activity going on in the market recently which I would describe as more of the same. I find it very hard to understand the value." Grant Rumbles.

“We set out last summer to prepare for a listing and we had got a long way down that path before we started to talking seriously to Kier,” he says. “We have been very careful to find the best solution for the company.”

It is this fit between the services, skills and clients of the two businesses which, he said, really makes the deal stack up and makes it stand out in terms of added value.

More not just bigger

With so much market consolidation going on in the sector, he said, highlighting recent deals between Arcadis/Hyder and WSP/Parsons Brinkerhoff, finding this added value to really drive forward both businesses in the eyes of clients was critical

“There has been a lot of merger and acquisition activity going on in the market recently which I would describe as more of the same. I find it very hard to understand the value." 

For Rumbles the goal was to create more not just bigger.

“The whole of our thinking is around having complementary strategy in complementary markets – there is very little overlap with the sectors that we work in and that means that together we are stronger and can offer clients a wider range of services,” he explained.

Kier to buy Mouchel for £265M cash - see story here

For example, he pointed out that with Kier providing back office services to over 70 local authorities, Mouchel’s expertise in highway and asset management means there is clearly an opportunity to widen the services offered to these clients.

And across the growing UK highways management and maintenance sector the combined company will be better set to leverage the opportunity with combined clients now including Highways England, Transport for London and local authorities.

The deal, he explained, will also boost the range of facilities management and business process outsourcing services that the enlarged group can now offer to local authority clients, and those in the water and regulated industries market.

“Asset management is clearly one of the things that we [Mouchel] do well,” Rumbles said. “We currently outsource around £300M of work to our supply chain partners so there is clearly an opportunity to deliver more of this in house.”

It is a point reiterated by Kier chief executive Haydn Mursell in a press release this week.  

“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.”

“The banks have been enormously helpful to us. Of course the [rising] market has also been very helpful but we have won more than our fair share of work,” Grant Rumbles.

Fair price but the right fit

However, while Rumbles described the sale price as “a fair price” it is this ability to create added value for clients and “the right fit for the business” that pushed the long discussed deal over the line.

Because, he added, despite talking to many potential suitors over the last few months, the board always retained the option of floating the business if a better outcome could have been achieved for shareholders but also for the staff.

“I believe it is a better option for our people. Actually together we are stronger,” he said, pointing out that end to end collaborative services are increasing being demanded by clients.

“We believe this will continue. Already an integral part of our business model involves collaboration with partners.”

Three year recovery

Certainly under Rumbles tenure the Mouchel business has been through huge change and has been brought back to life following the 2011 share price crash on the back of attempted deals with VT Group, then Costain, then Interserve.

When he took over the helm there were two critical issues to resolve, he said. First the business was loss making and second it was over leveraged and saddled with around £160M of debt from past acquisition sprees.

“We had to do a range of things to get the business on the up and we spent a lot of money trying to get support we needed from the market. But we were unsuccessful,” he added referring to the decision in August 2012 to place the business into administration.

This saw Royal Bank of Scotland, Lloyds Banking Group and Barclays step in to write off £83M of debt in exchange for an 80% stake in the new, delisted company. The management team, led by Rumbles, took on the remaining 20%.

“The banks have been enormously helpful to us,” said Rumbles. “Of course the [rising] market has also been very helpful but we have won more than our fair share of work,” he stressed.

“Kier is buying us for our people – and we have some great people." Grant Rumbles.

Mouchel’s performance during the last three years 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 increased by 38% compared to the same period in the previous year and Mouchel has continued to grow and maintain margins at what it describes as “historic levels” and an order book of more than £2.8bn.

Building on a rising market

And with the UK infrastructure market continuing to rise, Rumbles expects the new combined business to reap the reward from the “naturel fit” enabling clients to be served better, across a diverse portfolio of markets.

The new business will be run by Mursell with Rumbles stepping down after the deal completes in June.

 “You don’t need two chief executives,” he joked adding that he was happy to leave the business in “great hands”.

“But of course I’m sad to step down because it has been great fun,” he added. “Kier is buying us for our people – and we have some great people. And certainly initially it will be business as usual. We have a range of different skills and different clients but the deal is all about the right fit and the culture of the businesses.”

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