Downturn will see smaller contractors selling to larger rivals, says report
A series of takeovers and sell offs will sweep the m&e contracting market as the effects of the wider economy reach the sector, according to a report by industry analysts Plimsoll Publishing.
The report has found that tightening of credit and a reluctance of the money markets to finance the next phase of development are forcing smaller companies to consider selling to their larger rivals, and that larger players are looking to buy smaller firms to diversify and develop their businesses.
David Pattison, senior analyst at Plimsoll, said: “It has a great deal to do with necessity. Many of the larger players in the market, despite the downturn, are desperate to find new ways to develop their businesses, but with the current climate, costs are being cut and business development is being slashed. So they need options to help them protect their futures and tap into existing revenue and profit streams.”
According to Pattison, financing a series of small acquisitions at key niche players in the market will give them two clear benefits: a quick route to increasing sales for relatively low cost, and a foothold in the emerging sectors of the market.
For the last few years, the larger companies have been surviving on wafer thin margins, most only making 3.3% or less.
Currently, 100 of the UK’s top 1000 players are losing money – evidence that their strategy of chasing sales and volume compromises profits.
Meanwhile at the other end of the market, an emerging group of 208 companies are smaller, high focused players. These fast-growing companies have been able to carve out niche markets for themselves, some with premium profit margins. The best examples are reporting sales increases of well over 43.6% per year and margins of 5.7%.
However, despite the excellent returns there now seems to be an eagerness to sell from many owners.
In today’s market, selling their business makes sense as it brings the chance of stability and security to protect the business and accelerates the development of the company due to extra resources.
The Plimsoll report analyses all the names, details and financial performance of the UK’s 1000 leading m&e contracting firms and includes a future snapshot on each company, demonstrating how each might survive this period of consolidation.
The report rates each company on their attractiveness as an acquisition and highlights the most attractive companies to buy in the sector.
For a copy of the Plimsoll analysis, call Clair Sherwood on 01642 626422 or e-mail firstname.lastname@example.org. The report is available for £350.
Electrical and Mechanical Contractor