Thursday, 17 April 2014

Contractor buys troubled rival for £24 million

One of the largest players in the social housing repairs and maintenance market has paid £24 million to snap up a rival firm.

London-listed contractor Mears announced this morning it is buying Morrison Facilities Services from its parent company Anglian Water Group for £24 million, in a deal that gives it a commanding position in the market.

Mears said the move would ‘reinforce’ its position as the ‘leading social housing repairs and maintenance provider in the UK’. Morrison is currently loss-making, but Mears said it is confident it can make the business profitable, and it has identified ‘significant strategic and operational synergy benefits’ from the move.

The £24 million cost will be met through £16 million in cash and £8 million in new shares that have been issued to AWG. Mears expects to run up an £8 million restructuring bill. This will be split between the 2012 and 2013 financial years, meaning the venture will not deliver any increase to the bottom line until 2014.

Morrison employs more than 2,500 people, and works with social housing clients including Manchester Council, Home Group, Leeds Council, North Lanarkshire Council, and Lambeth Living. Mears employs around 12,000 people, and both companies manage repairs and maintenance in around 500,000 UK social homes.

Mears has an order book of £2.6 billion while Morrison has an order book of £1.3 billion.

David Miles, group chief executive at Mears, said: ‘This is an exciting acquisition for Mears and we look forward to welcoming Morrison staff to the Mears family. I am confident that this will bring benefits for clients, tenants and staff.’

Both companies have repeatedly denied a sale was on the cards over the past six months.

However, in July Inside Housing revealed that AWG wiped £25 million off its valuation of Morrison as part of a ‘good will impairment’ charge, prompting renewed rumours of a sale.

The charge, which represented the difference in valuation of the company in 31 March and when AWG was bought in 2006, meant Morrison made a loss of £41.5 million during the 2011/12 financial year.

Morrison lost a £10 million contract with Paragon Community Housing in September and also lost an £11 million repairs deal from Southwark Council which was taken over by Mears in June.

In contrast, in its half year results published in August, Mears reported increases in profit and revenue.

Figures for the six months to 30 June showed a 2 per cent rise in adjusted profit before tax to £14.3 million and a 5 per cent rise in revenue compared with the same period of 2011, to £307.2 million.

In an interim management statement published this morning alongside the Morrison announcement, Mears says it is experiencing ‘solid trading’ in its core social housing and care divisions, and expects its full year results to be ‘in line with expectations’.

Mr Miles said: ‘I am delighted with the progress Mears has made in recent months. The acquisition of Morrison will further consolidate our market leading position and contract profile in social housing.’

Readers' comments (7)

  • Neil Thody

    I personally find it a great shame that this consolidation in the market place is occurring. The number of credible providers of repairs and maintenance in the social housing sector is diminishing yet further. This is classic "supply and demand" where fewer providers is likely to drive up costs for the social landlords and tenants out there. I'm sure Mears will integrate the new business well and provide the efficiencies that should come from an M&A and I wish them every success.

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  • Usual Suspect

    I agree with Neil.
    and bigger doesnt necessarily mean better in the provision of this service.

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  • This all comes from the Clients - whether they are Local Authority or Housing Association - creating contracts for maintenance that are far too large for the SME type contractors to tender for.

    You have only got yourselves to blame.

    The quality of work from these massive companies is also, in my experience, far worse than that of the SME contractors who have to keep their clients happy.

    Change your procurement policies and this consolidation will no longer be a problem.

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  • Melvin Bone

    Bigger is not always better.

    However good to see that £16 million in cash is being put up rather than borrowing from a bank...(or is the £16 million in 'cash' borrowed?)

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  • Maybe the market needs an element of consolidation as many RP's are increasingly looking to bring their repairs and maintenance services back in house which is likely to mean a shrinking market.

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  • Matt Murdock

    Mears have just taken on the contract at Southwark that Morrisons lost. Will there be any change given this buy out?

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  • Since working in this industry I have witnessed a rapid decline in standards of work. Tenders are not worth biding now as housing associations are going for the lowest bids. There has been more focus on annual gas services than meeting the needs of repairs. In some case I have witnessed tenants being without heating for over a week. Prices have dropped and so too have standards.

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