If 2010 was the year of the wreckage, then 2011 has to be the year of crawling out of it
The ongoing effect of New Labour’s fiscal stimulus kept the construction industry more or less afloat in 2010, but the year ended with the sound of air escaping from the life raft and no wider economic recovery on the horizon. There will be fatalities
“We’re at a point of inflexion,” says Tony Williams of Building Value, “where the market looks to be nearing a turn, and that is always the most dangerous point for firms. We could have another Rok this year,” he says.
Firms with the widest exposure to public sector building (excluding infrastructure) are the most vulnerable. Subcontractors will be in a particularly tough spot, as many have already lost money and work with the fall of Rok and Connaught.
The expected drop in education spend may leave contractors and consultants that geared up to ride the BSF bandwagon in some trouble. Likewise, anyone focused on local authority or prisons work will feel the pinch.
Large contractors that can bid for major commercial schemes, or diversify into infrastructure, could do relatively well. But smaller or regional contractors, particularly those used by councils, may be in trouble. Simon Rawlinson, head of strategic research at EC Harris, says: “It’s the squeezed middle that could be in trouble. The very small ones may be able to pick up repair and maintenance work to keep them going.”
Another pressure point is likely to come from rising commodity prices, with any firm exposed to that price risk under threat. That means that firms that won big contracts two years ago, at the start of the recession, could find themselves unable to deliver to that price without taking a big hit. Specialist contractors such as steelwork could be in particular difficulty.
Architects also look set to have another difficult year, with continued pressure on margins.
In 2010, the big mergers and acquisitions - Davis Langdon, Scott Wilson, Drivers Jonas - came as a bit of a shock. In 2011, there could be so many that they become, well, a bit boring.
The most publicly endangered consultant is Mouchel. Some firms - rumoured to include Capita - are hoping to snap up parts of the firm, while others, most likely private equity companies such as 3i, want to swallow the lot. But for other firms, recent expansion plans across the globe make them a more risky proposition for suitors.
After the double casualties of Connaught and Rok, it’s a fair bet that the next company to hit the deck could be in property services. Apollo had to call in Pricewaterhouse Coopers to look at the business in July, and rumours continue of a merger with Keepmoat - fiercely denied by Apollo, of course.
Fortunately for those stuck in suicide bid territory, buyers are everywhere you look. Capita Symonds has already made clear its intention to snap up at least three more firms to bolster its property management business. Ramboll and Turner & Townsend are also thought to be on the hunt.
EC Harris will be forced to make acquisitions next year. In the year to the end of April its turnover dropped about 18% to £270m, £130m shy of the £400m target they need to fulfil their plan to float on the stock exchange. The consultant won’t achieve that growth organically, so is understood to be scoping out targets in the Far East, as well as at home - rumoured to include a top 20 consultant.
And the US giants? Rumours of Aecom buying a big architect have not gone away, with HOK consistently in the frame, though high-profile departures at RMJM have also fuelled talk of a US takeover. CH2M Hill is likely to be still on the hunt after losing Scott Wilson to URS. Indian or Far Eastern firms are also on the prowl.