After a courtship that has lasted since early December, heavy construction specialist Kier (KIE) has finally closed the deal on its takeover of infrastructure and business services group Mouchel. Stock in the Shares 'Play of the Week' (22 May 2014) adds 1.85% to £16.55 on the news.
Kier has agreed to acquire Mouchel for a total consideration of £265 million in cash which is to be financed by a £340 million fully underwritten rights issue with proceeds from the issue being used to repay Mouchel's net debt as well as finance the deal's integration costs.
The widely held view in the industry is that Kier and Mouchel should prove a good fit. Mouchel has a strong presence in the highways sector and maintains around a third of the Highways Agency network and this higher margin business should allow Kier to continue its services division's robust expansion. Around 20-25% of Kier's revenues come from services where margins at roughly 4.8% are almost double those in construction.
Alastair Stewart at Westhouse Securities certainly sees the deal as 'a good strategic fit, making the combined group the leader in highways management'. Kier has some form in making big integration stories a success. The May Gurney acquisition – completed in July 2013 for £223 million – is the gift that keeps on giving and the ongoing synergies from that deal augur well for the Mouchel acquisition.
Kier is not the first company to express an interest in Mouchel's highly complementary business mix. As far back as the first quarter of 2011, competitors like Interserve (IRV) and Costain (COST) had both expressed more than a passing interest in the Woking-headquartered infrastructure specialist.
Interserve's stated aim of creating a fully integrated market leader in consultancy and support services with particular emphasis on outsourcing and infrastructure was at the time viewed with some puzzlement by market observers. The Kier deal on the other hand should produce £10 million in 2017 synergies according to Liberum's Joe Brent. 'Crudely assume 15% accretion in 2016 rising to 20% in 2017,' he counsels.