好色先生TV

In three weeks鈥� time Carillion will officially - according to stock market rules - be free to renew its interest in acquiring the UK鈥檚 biggest contractor Balfour Beatty.

Carillion鈥檚 opportunistic 拢2.1bn approach for the firm was one of last year鈥檚 biggest stories and, while unsuccessful at that time, still has potential to create a construction giant of a scale the UK market has never seen before, uniting the two largest firms in domestic construction. Speculation is mounting as to whether it will use the ending of the six-month prohibition on bidding on 21 February to fire the starting gun on a fresh takeover approach.

And it鈥檚 not the only potential major acquisition on the cards: Kier in December announced it was in preliminary discussions with engineering business Mouchel about mounting a takeover, and just this week engineer WYG announced it was potentially looking for a buyer. This activity comes on the back of a number of major deals in 2014 of both listed and unlisted companies, with WSP buying Parsons Brinckerhoff from Balfour Beatty, Dutch engineer Arcadis buying Hyder, and Galliford Try purchasing the troubled construction arm of Miller Group.

It鈥檚 little surprise that with turnover of construction firms back on the rise after years of recession, but with valuations still low as years of difficulty continue to take their toll on profits, some companies are spying the opportunity to make a good deal. A survey of construction finance directors, conducted by analyst house Liberium, found that 85% expect an increase in M&A activity this year - and importantly nine out of 10 of the sector鈥檚 investors (small-to-midsize fund managers) agree. So what are the prospects for more mergers and acquisitions this year, and who is out hunting for targets?

M&A activity during the recession has been characterised by two principal themes: consolidation in the consultancy sector, where a number of major business have been acquired, mostly by large foreign-owned consultants looking for prestigious UK expertise and manpower; and opportunistic purchases of businesses made vulnerable by the long economic slowdown. Aecom鈥檚 purchase of Davis Langdon and Arcadis鈥� buy-up of Hyder are two examples of the former, while Morgan Sindall鈥檚 purchase of parts of Connaught and Galliford Try鈥檚 Miller Construction acquisition are examples of the latter.

Few experts see any reason for the pressure for consultant consolidation to ease, with Liberum marking all consultants as potential acquisition targets in 2014, making WYG merely the most open example. UK engineer Atkins, for example, was widely reported to have mulled buying Parsons Brinckerhoff last year before WSP stepped in, and has made no secret of its desire to bolt on further acquisitions to boost growth, primarily into new markets overseas. However, for other analysts, the 17,000-strong firm could itself be a target for one of the international consultancy giants.

The second dynamic - of opportunistic purchases of troubled contractors - has seen some major deals pulled off, but, with the major exception of Balfour Beatty, is becoming less plausible as the market recovers. These deals are in stark contrast to those undertaken before the recession took hold, where housebuilders and contractors were agreeing to merge with other strongly-placed rivals in order to grow turnover and market share. Chris Temple, construction leader at PwC, says: 鈥淎ctivity has been limited during the long recession as there have actually been very few really good businesses to buy. The deals that we鈥檝e seen have very rarely been the coming together of two businesses both from a position of strength.鈥�

With the strengthening market comes the opportunity - potentially - for a return to this kind of approach. But there are a number of factors mitigating against it. Tony Williams, chairman of analyst 好色先生TV Value, says: 鈥淲ith contractor acquisitions you have this perennial question of what are you actually buying? It鈥檚 generally a set of mobile assets and plant and a bunch of works in progress. All these things are notoriously difficult to value - it鈥檚 very easy to buy a big can of worms.鈥�

Kevin Cammack, analyst at Cenkos, agrees: 鈥淚t鈥檚 still quite early in the recovery and there is still quite a tail of poor margins and profit recovery at contractors. Companies are not too sure whether if they buy someone with a rising order book it will deliver a commensurate rise in cash flow and profits. It may make them cautious about taking on a business.鈥�

Factors such as the general election, which is expected to lead to a hiatus in government spending decisions and local authority planning approvals, may also lead firms to defer business decisions until later in the year.

Nevertheless, PwC鈥檚 Temple says he is seeing strong interest in sales and acquisitions in a number of areas: firstly, where firms are looking to dispose of non-core assets; secondly, where they are looking to acquire businesses operating in spaces they are not currently exposed to; and thirdly, where there is an opportunity to fill in particular gaps in their service provision in a specific market through a targeted small purchase. 鈥淭here鈥檚 a reasonable amount of interest in deals where you can identify a business with a cross section of the right competencies in the right sector, enabling you to in-fill certain specific skills sets,鈥� he says.

Another area which analysts suggest may prove fruitful in 2015 is that of private equity-owned housebuilders such as Miller and Countryside, who have previously been angling toward a stock market flotation, but may now be seeing a trade sale as a potentially more lucrative exit. Miller Group鈥檚 owners Blackstone pulled its flotation in October last year, just 10 days after launching it.

好色先生TV Value鈥檚 Williams says: 鈥淢iller may think, 鈥榠f we鈥檙e not going to float now, we could put this business up for sale鈥�. If you鈥檙e Galliford [Try] or Kier you may be interested in picking up one of these firms that has been groomed for flotation.鈥�

This doesn鈥檛 mean, however, that we should expect a return to the frothy market that saw Barratt buy Wilson Bowden and George Wimpey merge with Taylor Woodrow in multi-billion pound deals in 2007 - two transactions driven by an acute shortage of land with planning permission in a booming market. Stephen Rawlinson, analyst at Whitman Howard, says: 鈥淭he publication of the NPPF (National Planning Policy Framework) means there is much more land available for housebuilders. Land is not the issue that it was in 2007, the top 20 [housebuilders] have plenty of land so they don鈥檛 need to acquire each other just to expand.鈥�

Despite this, an increase in M&A activity looks to be upon us. It will be interesting to see which firms exist in the same state as they are now, by the end of this year.