Carillion’s £306.5m acquisition of Eaga is an interesting move from a strategic point of view.
The deal will boost Carillion’s support services division as it seeks to reduce its exposure to general contracting work, and it will move Carillion into Eaga’s markets, which it says are worth £20bn per year.
There’s clearly a big opportunity for Carillion to bring its financing skills and ability to close big PFI deals to the Eaga business but it also looks to be a foot in the door to the social housing sector.
Interestingly, when listing the potential market opportunities, Carillion said the social housing sector is worth £10bn per year. Eaga, as a specialist in the renewable energy sector, only really goes for about 15% of this market.
When asked if Carillion see social housing as a growth area, McDonough said: “Carillion will be targeting social housing more. This deal opens up significant sector potential”.
If the Eaga deal is a pre-curser to Carillion entering the social housing sector in a big way, its competitors should worry. With the increasing importance of green energy and the introduction of the Green Deal, being able to offer a full energy service to registered social landlords and local authorities could be a massive benefit to the business. Eaga already services 160,000 boilers for local authorities so has an established footprint.
The attraction of the market is clear. The government has set a target for the installation of renewable energy systems in 750,000 homes, the bulk of which is likely to be solar PV panels. Phase one of this is likely to involve around 40,000 homes, with a £300m PFI deal expected to be closed soon.
This deal alone, in which Eaga will invest £15m of its own cash in return for a 20% shareholding, could lead to installation and maintenance revenues of £300m, according to Carillion. McDonough said today that Carillion can bring its PFI experience to the deal and would potentially like to increase its share of the deal to 50%.
The scale of the opportunity is massive and Carillion looks to have bought itself a major player just at the right time. Listening to the conference call for City analysts and investors this morning, McDonough was selling the deal well. Carillion’s share price reacted positively to the news too and was up 4% in early trading, while the stock market was down 0.5%.