City watch: Integration key to Kier’s takeover deal for Mouchel
In late March I reported on Kier Group plc following the release of an encouraging set of interim results.
Last week, the construction, services and property company announced it has reached an agreement to acquire Mouchel in a £265m all-cash deal.
Mouchel is the UK's largest maintainer of national roads as well as providing design, managerial, engineering and operational services around the world. Additionally it has a small business process outsourcing business that provides an integrated portfolio of support services to a range of establishments including local authorities, schools, and rescue services.
Combined, the two businesses will create the sector leader in the UK highways management and maintenance market (where Highways England plans a £17bn spending programme), servicing almost a third of the UK's road network. Based on historic 2014 figures, the combined entity will have pro forma revenue of £3571m (Kier £2954m).
To fund the acquisition, which will include taking on Mouchel's £40m net debt and £45m of net pension liability, Kier is aiming to raise £340m in a fully underwritten rights issue. Management's rationale for the deal is that it should be 'materially earnings enhancing' in the year to June 2016 and facilitate £10m of cost synergies in the year to June 2017. As always, the success of the deal will hinge on whether the price paid proves attractive and management's ability to successfully amalgamate the two businesses.
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