Steve Morgan adds planning system and lack of land is hindering organic growth
The founder and former boss of Redrow says last week鈥檚 拢2.5bn merger with Barratt would not have been necessary in a healthier housing market.
Steve Morgan, who founded the business in 1974 and remains a shareholder, was involved in the early stages of the deal, which saw the UK鈥檚 biggest housebuilder acquire Redrow鈥檚 entire share capital.
Speaking to 好色先生TV鈥檚 sister title Housing Today in the wake of the agreement, Morgan said the state of the housing market explained the increasing trend towards concentration at the top of the industry.
鈥淚f Redrow were able to go out and buy as much land as they wanted whenever they wanted, you wouldn鈥檛 need mergers or acquisitions [M&A],鈥� he said, adding that the same applied to any other builder.
鈥淭here would be no incentive [for M&As] if you could go out and buy land. It would allow SME builders to grow and the whole industry to thrive.鈥�
He said consolidation was 鈥渄efinitively the direction [the industry] is going鈥� but added this was no different to other sectors, such as car manufacturing.
Morgan said he expected M&A activity to increase in the sector, suggesting that the planning system was putting limits on firms鈥� organic growth.
鈥淗ad I still been at the helm of Redrow, I would have been fishing around looking for possible acquisitions myself,鈥� he admitted.
鈥淭he time and circumstances really make sense of M&A activity. We have got such a dire planning system [鈥 it makes it very difficult for any housebuilder, of any size, to grow their business. You are just running through treacle all the time.鈥�
Morgan founded Redrow as a civil engineering business after the firm he worked for as a 21-year-old site manager went bust.
The business won a new sewer contract on the day it announced it was closing and Morgan offered to take it on as a subcontractor.
Within a decade it had grown to be a medium-sized regional contractor in the north west and Wales, switching to private housing after Margaret Thatcher took an axe to public spending.
When I started Redrow you could get planning permission in six weeks, and that would be just laughable today 鈥� even six months would be laughable
Steve Morgan
鈥淲e were able to do it because the land was available and you could get your permissions quick,鈥� he said.
鈥淲hen I started Redrow you could get planning permission in six weeks and that would be just laughable today 鈥� even six months would be laughable,鈥� he said.
鈥淲e could buy a site, build it very fast, turn it back round and go onto the next site because they land was there.
鈥淭he red tape in housing compared to when I started is off-the-scale. I feel sorry for SME builders, how they cope with it I don鈥檛 know.鈥�
After expanding to other parts of the country in the 1980s, the business was floated in 1994. Six years later, Morgan left for the first time and the new management changed strategy.
He remained a shareholder, 鈥渇or old times鈥� sake as much as anything else鈥� and was asked to return to running the business after it was 鈥渃aught with its pants down鈥� in 2008 in the wake of the financial crash.
鈥淲e went on the attack 鈥� instead of closing sites we got back on site, started building again and we dropped the prices and started selling,鈥� he said, describing his strategy post-recession.
By the time he left for the final time a decade later, the company was making more profit than it had been turning over when he rejoined.
Morgan said he saw the deal with Barratt as 鈥渁 merger rather than a takeover鈥�, explaining that the firm he founded had 鈥渏ust moved on to a different chapter鈥�.
鈥淚t鈥檚 by no means the end of Redrow,鈥� he said.
>> Also read: Steve Morgan interview: 鈥業t鈥檚 like the government wants to destroy the industry鈥�
>>Barratt deal could see 850 jobs go
>>Barratt鈥檚 acquisition of Redrow: the numbers and key players
Morgan said that there had been no 鈥渟erious鈥� offers for Redrow during his many years in charge of the business and revealed the deal with Barratt had been in the making since November. He said the 鈥渞elatively quick鈥� completion was down to the pair鈥檚 imminent half-year results, which he said had 鈥渟harpened the minds鈥�.
Both housebuilders saw their profit and revenue drop on the day of the merger, though executives from the pair also pointed to signs of improvement in the housing market.
Barratt鈥檚 profit was 81% down to 拢95m in the half year to December 2023, with turnover of 拢1.85bn, a third down on the same period the year prior. Meanwhile, Redrow鈥檚 half-year profit was cut to 拢84m on revenue of 拢756m.
Explaining the benefits of the deal, Morgan said: 鈥淩edrow is very strong in the forward land market and has options and owns a number of very large sites in the pipeline [and] Barratt, particularly through the Gladman acquisition, a year or so ago, also have a number of very large sites.鈥�
He said trading with multiple brands would allow the pair to get through large sites quicker with a stronger return on capital. 鈥淗aving three very distinct brands in house is a very positive weapon to attack major sites,鈥� he added.
The deal now has to be approved by shareholders and regulators, but Morgan dismissed the notion of an intervention from the Competition and Markets Authority.
He said he was not worried about the watchdog鈥檚 ongoing inquiry into potential collusion because 鈥測ou can鈥檛 find things that don鈥檛 exist鈥� and hit out at the housing secretary Michael Gove, who pushed for it in the first place.
鈥淭hey are looking for builders who work together to squeeze out SME builders. I鈥檝e been in this industry all my life and that is just utter bollocks,鈥� he said. 鈥淏uilders would cut each other鈥檚 throat for a decent parcel of land.鈥�
鈥淚t makes my blood boil,鈥� he continued. 鈥淗ow dare they point the finger at builders when they have been tinkering and messing around [鈥�.] they are indecisive, they change their mind like some people have dinners.鈥�
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