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Barratt鈥檚 move to buy rival Redrow in a deal worth 拢2.5bn could be a signal of confidence about the outcome of a competition inquiry, analysts say. 

The takeover, which would , is subject to approval by the Competition and Markets Authority (CMA) and comes against the backdrop of an ongoing probe into the sector by the watchdog. 

Due for publication before the end of the month, the CMA鈥檚 market study was launched after a repeated calls from the housing secretary, Michael Gove, who has previously accused top housebuilders of acting like a 鈥渃artel鈥�. The deal would see the largest housebuilder by turnover (Barratt) acquiring the seventh largest (Redrow).

鈥淐learly the big question around [the deal] is whether it is going to get sign off from the CMA or not,鈥� said Neil Hudson, founder of Residential Analysts. 

鈥淭he timing of it is interesting because it possibly suggests that the housebuilders are feeling confident about the outcome of the current investigation into housebuilding. 

鈥淭here are benefits to having larger market participants who can maybe invest more and have more stable business models but, equally, there are markets where it reduces competition, which is obviously a negative.鈥�

Analyst Alastair Stewart said the acquisition was 鈥渦ndeniably鈥� part of a trend towards a 鈥渟uperleague鈥� of housebuilders but said the CMA was just 鈥済oing through the motions鈥� of carrying out an inquiry. 

鈥淚t has been foisted upon the industry by you-know-who in the levelling up department,鈥� he said, describing accusations of cartel behaviour as 鈥渢waddle鈥� and blaming lack of competition within the industry on the regulatory burdens created by government policy. 

鈥淚 think the big guys will increase their lead over pretty much everybody else and the question that now remains is whether somebody else could be bought,鈥� Stewart added. 

Earlier this week, Michael Gove made further remarks about the perceived overconcentration of the industry at a Lords committee hearing, suggesting that large volume housebuilders  

A spokesperson for the House Builders Federation called these suggestions 鈥渁bsurd鈥� and pointed out 鈥渢he rate and range of change businesses are managing鈥�.

鈥淭he industry is grappling with step changes in how we power, insulate, access and construct new homes, on biodiversity, planning and issues such as drainage, whilst still awaiting key information from government and amidst a policy and economic environment that is driving housing supply down,鈥� he said.

鈥淢inisters should ensure that their departments are providing necessary guidance and address ongoing policy failures in terms of nutrients, the collapsing planning system and an absence of support for buyers such that homes can actually be delivered and innovation is allowed to flourish.鈥�

Bob Weston, founder of regional housebuilder Weston Homes, said he was 鈥渘ot sure [the Barratt Redrow deal] makes that much difference鈥� to the industry, given the long trend toward concentration in the sector. 

鈥淥ver the last 30 years there has been a huge concentration at the top and a squeezing of the SME market, which is worse now than it has ever been,鈥� he said, adding that the cost of money was rising for smaller firms and that its availability was being withdrawn by banks. 

Some, however, were more concerned. Darryl Dhoffer, advisor at The Mortgage Expert, said: 鈥淭he worry with this deal is that reduced competition could give the merged entity more control over pricing, which could potentially lead to higher prices for buyers. 

鈥淲ith fewer major players, there could also be less variety in house designs and features, and less incentive for innovation in the sector,鈥� he added. 

By contrast, Stewart said that diversity of product may have been one of the main appeals of the purchase to Barratt. 

鈥淨uite apart from getting economies of scale and synergies, the big positive [which is] a bit more intangible is that the Redrow heritage range is a very, very distinctive brand,鈥� he said. 

He added that he had been surprised by the deal but that it was 鈥渜uite a smart move鈥�.  

鈥淭he reason it was unexpected is because they almost had a near death experience the last time, they tried to buy somebody, Wilson Bowden, and I just didn鈥檛 see them making another acquisition for a long time,鈥� he said.  

鈥淏ut you have to look back [鈥�] that deal was done with debt whereas this one is done with equity.鈥�  

A note by analysts at Investec said the deal looked 鈥渧ery sensible given the challenging planning and land backdrop, particularly assuming that sales rates and the profit outlook gradually improves from here鈥�. 

鈥淭he all-share nature of the deal is astute, retaining a robust balance sheet,鈥� it continued.  

鈥淭he combination will be complementary in terms of geographies and product mix, and clearly enhances the land bank with synergies also expected.鈥�

Residential Analysts鈥� Hudson suggested that the deal may have been partly motivated by a fear of future takeovers. 

鈥淲ith their current business being slightly more fragile than it has been, the housebuilders are maybe a bit nervous about being taken over, so bulking themselves up by merging stops them being pray to private equity in the future,鈥� he said.