British housebuilders had better watch out. Having snapped up Fairclough, US housebuilding giant Centex is moving next door with a package of services that includes mortgages. Building finds out what's on the chief executive's mind.
The golf course is a second home for British housebuilders. A place to relax, do business and woo local councillors – and it was at one of Britain’s most famous courses that Building met the chairman and chief executive of the world’s biggest housebuilder, Centex, two weeks ago.

But although Larry Hirsch, whose £3.3bn-turnover US company has just bought Amec’s housing arm, was relaxed enough over scrambled eggs at Wentworth in Surrey, the similarities with his British contemporaries end there.

Hirsch’s outfit is different from any British housebuilder. It is far more successful, with net earnings of £151m last year, and it provides a range of services, including mortgages and aftercare verging on facilities management, that pose a serious threat to established UK firms.

While the contracting sector has seen an influx of overseas giants, such as Skanska, HBG, Ballast Nedam and Kvaerner, UK housebuilding has remained a protected market. Hirsch is set to sound a wake-up call here, but he also has mainland Europe in his sights as part of a plan to build 50 000 homes a year worldwide within 10 years.

Hirsch, a fit-looking, bronzed, New York-reared lawyer, has been head of Centex for 11 years, and his acquisition of Fairclough Homes for £108m is an extension of a strategy that served him well in the USA when parts of the market hit trouble in the late 1980s.

Centex survived by buying companies in less depressed areas of the States, and its move into Europe is intended to help it maintain a steady flow of income, no matter how economic cycles fluctuate around the world. One of Hirsch’s main weapons in cracking Europe is to be provision of mortgages. Formed by Tom Lively and Ira Rupley in Dallas in 1950, Centex moved into mortgages in 1973, and Hirsch sees no reason why Fairclough should not repeat the pattern.

Over the next month, Stewart Baseley, the former Charles Church man Hirsch has recruited to lead Centex’s drive into Europe, will be meeting financial services experts to explore how far the firm’s mortgage operation could be adopted here. In the USA, 70% of Centex homebuyers organise their loans through its mortgage company, which then sells these loans to financial institutions. With the arrival of the euro, Hirsch hopes to interest investors in what would be portfolios of loans to homeowners across the Continent.

Hirsch says: “We are a large financing company in the US and we want to investigate whether a mortgage company can operate in the UK from the building side. Is there a builder who is involved in financing in the UK? I don’t know. It is something we expect to bring to the market over time.

“Our initial shot from a legal standpoint is that there is no prohibition against a homebuilder acting as a mortgage company. It could be a valuable way to make money in the UK,” he says. Hirsch also hopes that European homeowners will want the security, alarm and pest control services Centex sells in the USA.

Hirsch has high hopes that Centex’s European expansion will make it a more attractive investment. “If you get truly pan-European companies trading on the stock exchanges in Frankfurt and London, investors are going to want to buy into its housing company.” The French market is particularly important to Centex because, under French law, a housebuilder takes an option on land while its application progresses through planning, with the final payment made once permission is won. But with no stand-alone quoted housebuilders on the Continent – most are subsidiaries of giant utilities or local, family firms – Centex had to use the UK as a jumping-off point.

Baseley and ex-Berkeley man Paul Bak, who were recruited a year ago, were instructed to look for UK acquisitions. After being linked with Beazer and Barratt, they plumped for Fairclough, which Amec had decided it would sell to concentrate on its core contracting and process engineering businesses.

Deutsche Bank’s construction chief Mark Aedy, who advises Amec, acted almost as a broker on the sale. Under the deal, the UK firm received a £108m lump sum plus Fairclough’s operating profit, up to an agreed level, until April 2001. This formula allows Amec to maintain a constant flow of profit while giving Centex the assurance that the business will not wither away while it gains greater knowledge of the European market.

Aedy believes this sort of transaction is right up Hirsch’s street. He says: “The deal hinged on the good relationship between [Amec chief executive] Peter Mason, Stewart Baseley and Hirsch. They are all sensible, commercial men.” Another City banker says: “Larry is very professional, very shrewd and has immense deal-making experience. Centex has bought a lot of companies in the US in some quite complex deals. He is very honourable, but drives a hard bargain. He perseveres and has very good connections in Europe [built through being an advisory director of German cement firm Heidelberger Zement]. He’s also a man of vision, and they are few and far between in British housebuilding.” Hirsch is indeed more of a deal-maker than a builder, and says he and most people at Centex – 95% of whom join straight from university – do not characterise themselves as housebuilders.

British volume housebuilders that have operated in the USA believe Hirsch and Centex are a force to be reckoned with, but wonder how the firm will cope with the UK’s tighter planning regulations.

However different he is, Hirsch shares British executives’ dislike for planning regimes. He says: “Planning is something we have to deal with. Systems are in general unduly complex and fragmented. In any market, it seems that if you move 10 miles, you can have a different building code. We are all looking for rationalisation of planning systems.” But Hirsch does not expect the new Centex-owned Fairclough to start making waves with radical, imported designs. He concedes that the young American families who buy its US homes – which on average cost $180 000 (£120 000) – like more “drama”, but has no plans to create a mid-Atlantic house design for the UK.

The overall plan for Fairclough is to merge the best of its business strategies with the best of the US operation. Hirsch admires British construction standards, believes marketing tactics are similar if slightly less aggressive, and wants to transfer staff between markets to learn from one another.

“We are not suggesting that there are things we do in the USA that are so revolutionary that we are bringing some new innovation to the UK market. The essence of what we plan to do is to develop management teams that can operate in various countries and understand construction there down to a detailed level.” Outside work, tennis is Hirsch’s favourite sport. Asked if he fits the stereotype of the 14-hour-day American executive, he says “guilty”, but he does find time for his family and a range of educational and charitable activities in Dallas. However busy he gets, Hirsch plans to come to the UK once a quarter to check on Baseley’s progress – just don’t expect to find him on a golf course.

Personal effects

What book are you reading? Cities of the Plain, by Cormac McCarthy. What music do you like? Classical and jazz. What do you like about Britain? People’s consciousness of the traditions and history of the country, which creates an enormous sense of pride. What do you dislike about Britain? The vestiges of the class system compare badly with the business meritocracy of the USA. What part of the USA would you recommend for holidays? San Francisco, California or Santa Fe, New Mexico.