Greg Fitzgerald explains why the chances to buy other firms are few and far between
Galliford Try was the last big construction firm to dip its toe in the mergers and aquisitions market when it paid £7m for the assets of Hull housebuilder Wright Group earlier this month.
Here, Greg Fitzgerald, its chief executive, explains the background to the takeover, and why such deals are thin on the ground.
We’re not exactly tripping over good opportunities like Wright at the moment. Part of the reason is that the banks are behaving differently to the way they did in the recession of the early nineties. Where they would previously have pulled the plug on a housebuilder, they are now looking to trade out because they don’t want to mess up their own balance sheets.
There has been a lot of talk recently about housebuilders raising cash from investors to go into the market, but why bother if the opportunities are so thin on the ground? Why dilute your share price now or be asked six months down the line why you haven’t spent the money? What’s more, valuations are still too high. Perhaps sellers will only accept prices have fallen when the one or two people offering them a particular price becomes a dozen.
In contracting, there haven’t been many takeovers of distressed smaller firms because buyers are only interested in picking up the odd contract. There is no point buying whole firms, because you have to pay for the goodwill (the difference between value of assets and sale price).
But you could see some activity at the top end of the market. The money big contractors could save by clubbing together could prove irresistible.