Investors call for fewer, larger companies in the wake of the Beazer–Bryant deal.
Construction companies are facing fresh calls from the City to link up or go private after the announcements of mergers at Beazer and Bryant and Wimpey and McLean.

Beazer and Bryant plan to create a £760m housebuilder, called Domus, and Wimpey Homes is cutting 250 jobs by integrating its operation with sister company McLean Homes (15 December, page 17).

The two deals promise to reap savings of £20m and £15m respectively, convincing City experts that the arguments for consolidation are stronger than ever.

Mike Betts, construction analyst at JP Morgan said: "There will almost certainly be more mergers now. Putting Wimpey and McLean together has shown the cost saving potential to the City."

However a leading analyst warned that any company, regardless of size, would find it hard to attract the largest pension funds. "Domus is an £800m company but it's still too small," he said. "Large investors want companies with a market worth of £2bn-plus."

One fund manager confirmed this view. "There are too many companies in this sector, their valuations are too low and there is not enough liquidity in their shares," he said.

Putting Wimpey and McLean together has shown the cost saving potential to the City

Mike Betts, JP Morgan

After a spate of consolidation in the summer of 2000, which included the merger of Galliford and Try and several buyouts by small housebuilders, corporate activity among builders appeared to have tailed off in recent months. Now the Wimpey and Beazer deals have brought renewed pressure for competitors to follow suit.

Several companies, including Taylor Woodrow, have expressed a desire to take part in further consolidation. Adrian Euer, Taywood's finance director, said: "We would like to increase the size of our UK housing business and if there are opportunities to do that which add to shareholder value then we'll do it."

Other construction bosses known to be keen to acquire, be acquired, or merge, are Oliver Whitehead, chief executive of Alfred McAlpine and John Morgan, executive chairman of Morgan Sindall.

However, one analyst warned that those businesses that still have contracting and housebuilding arms may be forced to sell their contracting businesses in order to find a partner. Mike Foster, analyst at Granville Baird, said: "Having a mix of contracting and housebuilding is out of fashion. After Laing's decision to dispose of its construction arm, we are going to see pressure on contractor housebuilders to tidy up their operations if they are going to participate in mergers."

Analysts predict that City pressure for consolidation will increase still further if the sector's recent stock market rally tails off.

Companies tipped to go private in 2001

Alfred McAlpine
MJ Gleeson
Tay Homes … and companies tipped to go shopping Heron International

The year in review for contractors …

  • Amec buys Canadian engineering design group Agra for £221m
  • Try and Galliford merge to form a single company with a turnover of £450m
  • Scottish contractor Morrison is snapped up by Anglian Water for £262m
  • After years of looking, Swedish contractor Skanska buys a UK contractor, Kvaerner Construction, for £358m
  • YJL rounds off a year of small acquisitions with the purchase of Hatchpaines Construction and safety equipment supplier BB&EA. During the year YJL also takes a minority stake in main contractor MJ Gleeson
  • Laing puts its troubled construction arm up for sale with a price tag of £100m
  • Skanska sells its 7.6% stake in Costain after acquiring Kvaerner Construction
  • … and housebuilders

  • Merger talks between Alfred McAlpine and Bryant stall
  • Linden reveals that it is talks with venture capitalists about funding for a management buyout worth about £80m
  • Ward Homes’ chief executive David Holliday announces he is leading a £34.2m bid to take the company private
  • Fairview relaunches its £295m management buyout, after shelving plans to take the company private in July
  • Alfred McAlpine reveals that it has rejected a £244m approach by a mystery bidder, later revealed to be Heron International, led by property tycoon Gerald Ronson
  • Beazer and Bryant agree to a “merger of equals” to form Domus, the UK’s second biggest housebuilder after Berkeley Group, with a stock market value of £760m
  • Wimpey Group announces that it is to combine its two housing businesses, Wimpey Homes and McLean Homes. Savings of £15m are promised, as are 250 job losses