Marshall's PB conundrum: unintegrated but undoubtedly useful

Steve Marshall has stepped into the breach, again, but is selling resolutely unintegrated Parsons Brinckerhoff the answer to Balfour Beatty's present difficulties? Jackie Whitelaw looks back to try to see ahead.

Balfour Beatty

News last week that Balfour Beatty chief executive Andrew McNaughton had fallen on his sword after another £30M hole in the company profits was discovered, followed on from the revelation of a £50M gap last year. It was gutting for McNaughton, gutting for Balfour Beatty, its staff and shareholders and not the best day at the office for the company’s chairman Steve Marshall who has had to step in to fill the breach at the head of the business as executive chairman.

Marshall has been in this situation before, of course. The former group finance director of Railtrack took on the post of chief executive when Gerald Corbett resigned in 2000 after the Hatfield rail disaster and consequent fall out. He then announced his own resignation a year later when the company was put into railway administration by the government before being reincarnated as Network Rail.

PB has remained resolutely un-integrated ever since – try finding a reference to Balfour Beatty on its website in under three clicks.

After two years spent pursuing a passion for wildlife and in particular working with a chimpanzee sanctuary, he re-emerged in the corporate world as chairman of hotelier Queen’s Moat House five weeks after the company's shares had been suspended when it breached its banking covenants and failed to publish its full-year accounts.

He then led a strategic review while simultaneously seeking buyers for the entire business which was sold to Goldmann Sachs in 2004.

Marshall joined Balfour Beatty as a director in 2005, becoming chairman in 2008.

Now he is setting out on another strategic review of the company, which underwent a major reorganisation just two years ago in 2012. And while there is no question he is seeking buyers for the whole business, the company has announced that its consultancy arm – Parsons Brinckerhoff (PB) is up for sale, at the right price.

The PB business, which forms the group’s professional services arm, was bought in 2009 for £380M but the group has struggled to properly integrate the operation ever since.

“PB has grown and been successful in its own right, it hasn’t delivered any material competitive advantage for the group"

Nick Pollard, Balfour Beatty Construction Services chief executive

Even on the day of the announcement, Balfour Beatty and PB management were talking a different story. To Balfour’s the acquisition was “a key step in becoming a global integrated leader in infrastructure services”.

PB meanwhile was equally delighted with the deal because “Balfour Beatty has agreed that Parsons Brinckerhoff will retain its name and organisational structure and operate as an independent but wholly-owned subsidiary” as they said at the time.

In the five years since then it has been clear that while the design business has remained successful, the group has struggled to properly bring it into the Balfour Beatty fold.

It hired Andrew Wolstenholme fresh from his success at T5 to become managing director of Balfour Beatty Management and “manage the takeover and drive business opportunities that exist between the two companies.” A bit of a tall order there, because in the same sentence, announcing Wolstenholme’s role, then chief executive Ian Tyler said (in retrospect rather confusingly) “although the powerful Parsons Brinckerhoff brand would remain, it will continue to operate independently".

A year later, Wolstenholme had a new role, with the Star Wars style acronym of the DISC – director of innovation and strategic capability. And then he moved on, to London’s eternal gratitude, as chief executive of Crossrail which is currently breaking all records as a text book construction scheme.

PB has remained resolutely un-integrated ever since – try finding a reference to Balfour Beatty on its website in under three clicks. And Balfour Beatty’s use of its services has been somewhat limited. When asked why one, now ex, director, laughed and said “we can’t afford their rates”.

There is no question PB is a good business and adds to Balfour Beatty’s financial security. In 2013 it contributed 16% to revenue at £1.7bn but 28.9% of profit at £54M.

According to Balfour Beatty Construction Services chief executive Nick Pollard last week, although “PB has grown and been successful in its own right, it hasn’t delivered any material competitive advantage for the group".

“It is a fact that some customers prefer a different model to this one stop shop,” he added. “The group has quite correctly identified that PB has market value. But if the business does not attract significant value then we would not sell it – it is not like we need the cash.”

However it might just need the profit.



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