Big Business

We realised that construction was never going to be a favourite business with the financial markets as it has tended to be adversarial and low margin work. The appeal of facilities management was high visibility and long-term contracts.

We bought Bandt Plc (in 1999). Fifty per cent of Bandt's profits came from equipment services and 50 per cent from industrial services – primarily providing outsourcing services to pharmaceuticals, industrial conglomerates and so on, taking us a step further into support services.

To continue the focus of the group we sold our Scottish housebuilding business. That clarified our position in the market but we wanted to continue to increase our critical mass in support services and we continued to search (for an acquisition). One of the possibilities was Building & Property.

Q: You've talked to a number of management targets including Lambert Smith Hampton before it was bought by WS Atkins. Why did you bid for Building & Property?
MB: What we had was a (facilities management) business which was predominantly in the private sector doing relatively small facilities management contracts, albeit attractive, and working with some well known names. What Building & Property brought us was a business predominantly in the public sector and doing some large facilities management contracts. So it was possible to put the two together and end up with a much broader range of capability, and, at the same time, to gain that greater critical mass, enabling us to pull away from smaller operators.

Q: How are you different to the myriad of other construction companies fighting to get into the support services sector?
MB: I think the difference is that we made the decision early on that we would change the complexion of our business, cut out straight competitive tendering for large contracts and concentrate on PFI schemes and long-term contracts. Whereas Carillion, for example, has the BT Project Jaguar facilities management contract which I don't think has got very far, we've got a £200 million (construction services) contract already with BT. Those sorts of long-term contracts are something we have targetted. Now over 80 per cent of our business is secured on a non-competitive basis.

We like to think we are ahead but of course these businesses are all essentially different. I don't think we are comparable to Carillion – I suppose now we are closer to someone like Mitie, Serco to some extent, maybe Amey.

Q: In September last year, you announced interims showing a pre-tax profit increase of 43 per cent to £17 million. Despite this, some commentators said they would like to be sure Tilbury was generating organic growth. Was that fair?
MB: The difficulty with the sort of acquisitions we have done is the integration process has been such that it wasn't possible to differentiate between an accurate amount of acquisition growth and organic growth. I think that probably led to some frustration about how to analyse it. But I would say that when we get a growth rate of 15 per cent plus consistently then that's the criteria – the question of whether we've achieved that by organic growth or by acquisition is not that critical.

Q: You've been approached by numerous suitors over the years – why sell now?
CG: We've had many approaches but it wasn't until this year that our venture capital backers CVC and the management of the business felt we had reached the stage where we could demonstrate that our business strategy had been successful – our focus being on MOD, PFI, large contracts and selective contracts. In 1999/2000 we could show that it had been successful – before this year we were managing the transition.

It was inevitable we would be sold – the question was where could we find the best home. Flotation was not an option since the the business was not large enough therefore it had to be a trade sale.

Q: Of the many potential interested parties, why choose Tilbury Douglas?
CG: Three reasons. First, we are an integrated facilities management company – a prime contractor. Integrators require a broad range of skill sets. Whereas we had a lot of facilities management and specialist skill sets, for example with the police, Tilbury Douglas had skills in construction equipment, industrial services and engineering that we didn't. Together we are better placed for larger, more complex projects.

Second, balance sheet strengths. On a PFI contract a bank is often putting up hundreds of millions in debt which is dependent on the performance of the facilities management contractor to allow that debt to be serviced. They need to know they are dealing with a facilities management contractor who is reliable, and stable and strong. Tilbury Douglas is long established, with a good reputation – so any concern that we can't stand behind a contract is minimised.

Finally, we needed critical mass. The market is polarising into integrators and service deliverers and the middle ground is getting squeezed. At the top end of that market, the integrators are consolidating – Amey and Comax, Tilbury Douglas and us. There will end up being four or five major players and any large complex project will fall within one of those group of companies.

That is being driven by the size and complexity of the opportunities coming to market – PFI, best value, integrated prime for the MOD, all of these are pushing this need for consolidation. As part of Tilbury Douglas we will ensure we have the critical mass to be players in that market.

Q: Mike said he believes that in the future, corporate PFI is a possibility and would probably require the group to build a relationship with a property company. How close is this?
CG: I think it is something it is perhaps better to be behind the leading edge on. We've been talking about corporate PFI in the industry for the past three years – I don't think anybody can point to a deal yet.

All the deals in the pipeline that I know of have fallen apart. I'm not sitting here crowing, what I'm saying is the relationship between the management of the property portfolio and overall strategic direction of the business in fast moving businesses is problematic. Businesses that look at it are under stress, but as soon as one makes a decision the world has moved on. We need a quicker, faster solution.