Combined firm will create £1bn-turnover social housing business

Contractor and developer Keepmoat has announced its intention to merge with smaller rival Apollo Group to create a £1bn turnover social housing business.

The deal, which has been agreed in principle by both boards and is being described as a merger, will see Keepmoat chief executive David Blunt lead the new group, which will be called Keepmoat.

Apollo will keep operating as a brand under the Keepmoat umbrella. Blunt said the combined firms will turnover £1.05bn in the year to March 2011, according to unpublished but audited accounts. The financial terms of the deal have not yet been agreed.

Last year Keepmoat reported a pre tax profit of £68.8m after turning over £604m, while Apollo made an £10.3m profit on revenues of £346m. Both firms are in a portfolio of businesses which was owned by Lloyds HBoS until the portfolio’s July 2010 sale to Cavendish Square Partners, which is majority owned by private equity group Coller Capital.

Building reported market rumours a deal was on the cards in November last year.

Blunt said the rationale behind the merger was to provide a better opportunity for growth for both firms, by combining two “complementary” businesses. “One business is primarily in the south, one is primarily in the north, there is very little overlap. But we are intending to capitalise on the market position that both have, to take expertise from both firms out to the wider group.”

Blunt added the greater financial size of the group, which works in the same sectors as the collapsed firms Rok, Connaught and Kinetics, would offer customers “enhanced scale and financial stability to satisfy them even more, with a stronger financial base.”

The two firms are yet to conclude a deal, with both boards so far just agreeing to “investigate” the merger. Blunt said Cavendish had given the decision its blessing, and the two are understood to have set up a steering group to work through how to integrate the firms, and be on the brink of appointing firms to undertake professional due diligence.

Blunt said it was ”premature” to dsicuss a price for the deal. “These are things that need to be worked upon,” he said.

“Obviously this is not a merger of equals in terms of financial scale, but we are absolutely treating it as a merger in terms of how we approach it,” he said.

It is understood that about two thirds of the turnover of the combined firm will come from the refurbishment of social housing, either under planned maintenance or the decent homes programme. In the region of £350m of revenue is likely to come from new housing, with half of it building rental homes as a contractor and half building sale homes as a developer. The remainder of turnover comes from Apollo’s responsive maintenance business.

The current chief executive of Apollo, Dave Sheridan, will run the southern regions. Sheridan said: “Together we will be able to offer our customers an unrivalled service that truly differentiates us from the competition. I am very confident in our future prospects together and look forward to reporting on our progress in due course.”

Peter Warry, currently non executive chairman of Apollo, will become non executive chairman. Tom Allison, who has chaired Keepmoat for the past three years, will leave once the merger is complete.

The firms have notified the Office of Fair Trading of their intention to merge, and, given approval, hope to finalise the deal before the end of 2011.