A certain Scottish singer is not the only thing that has captivated the Americans in recent times – mid-sized UK quantity surveying firms are also finding favour
A few weeks ago only one thing was deemed important enough to knock MPs’ expenses off the front pages and that was the failure of a Scottish spinster called Susan Boyle to win a talent show populated by pre-pubescent warblers and comedy dancers. This was in spite of her acclaim across the Atlantic.
It’s surprising how relatively unknown talent can suddenly catch on among our American friends. And it’s no different in the world of UK quantity surveying and project management. If the excitement following the recent acquisition of QS and project management firm Savant International by US giant Aecom is anything to go by then we should prepare ourselves for an obsession of Boylesque proportions.
The recession has presented a number of challenges for mid-range consultancies in this sector and the topic of consolidation is being widely discussed as cash and work flow issues strike at the heart of many firms. What I would term the “big five” – Davis Langdon, Gardiner & Theobald, EC Harris, Turner & Townsend and Gleeds – are probably safe from the attentions of the Americans. These firms are founded on complex and historical partnership arrangements, structured individual equity investments and bank borrowings, which all combine to make a dose of swine flu more appealing than a merger. The organisations are also large and heavily diversified both geographically and commercially, so neither party would benefit much from consolidating.
However, for some of the mid-sized businesses the situation is different. They are feeling the pressure as work has dried up, banks have been less keen to lend and clients have drifted towards the security of larger firms, which they know are going to stick around through the recession.
American organisations are looking hungrily across the pond at infrastructure projects like Crossrail and they see an opportunity
For these organisations, a large American engineering firm like CH2M Hill, Aecom or Hill International may well appear to offer a safe harbour. As for the US organisations themselves, they are looking hungrily across the pond at infrastructure projects like Crossrail and similar schemes in France and Germany, and they see an opportunity.
One of the largest French infrastructure projects currently in procurement is the €1.2bn (£1bn) Nîmes-Montpellier TGV link, for which three bidders were shortlisted last month. It is one of four rail projects identified by president Sarkozy as part of a stimulus package to help the French economy out of recession.
For a US firm it is easier working through cost and project managers who are a stone’s throw across the Channel and speak English. It is surely more tempting than running a US–Euro project from San Francisco or Texas and struggling by on bilingual conference calls at all hours. Also, as a rule, the QSs and PMs tend to work closely with the client and have interpersonal skills that some engineers would envy. All this is good news for hungry US businesses that can snap up a medium-sized UK QS and not face the HR challenges from the European Working Time Directive that they may encounter in other European countries.
Takeovers always happen during a recession and at this time some of the smaller practices represent good value. Looking at previous mergers and acquisitions, the sale price appears to be based on a year’s turnover. As the figures for 2009/10 are not going to be that impressive for many, combined with a weak pound, it may well be bargain time.
For a US firm it is easier working through cost and project managers who are a stone’s throw across the Channel and speak English
The biggest barrier to consolidation in the UK is the partnership structure of our industry. Our own equity partners range from 35 to 60 years old. The idea of a fat cheque for a business you have built up for 30 years is sometimes a lot more appealing to a partner facing retirement than a younger colleague who wants to build a career as well as a personal investment over the long term.
The strategy of locking in the core talent with golden handcuffs is also vulnerable in a market that is so unpredictable. What may seem safe public sector work in 2009 with the current government may be less so if there is a change of administration in 2010. You may have bought a firm with contacts that are redundant and positions on frameworks that are moribund.
Towards the end of the year we may see some of our struggling smaller QSs and PMs disappearing into US ownership. But I don’t believe the Savant International sale necessarily marks a turning point and, like the Scottish singer Susan Boyle has found, being backed by the Americans does not always turn you into a winner.
Richard Steer is senior partner at Gleeds.