Housebuilder's £2.3bn pricetag expected to be too expensive for industry rivals

City analysts are expecting a private equity company to make an offer for housebuilder Wilson Bowden in the next week.

On Monday, Wilson’s shares rose 276p to 2098p after the firm announced that it was in preliminary discussions with a number of parties. A number of housebuilders have been linked to Wilson Bowden, including Bellway, Redrow, George Wimpey, Persimmon and Barratt Homes.

However the City is predicting that these companies will be outbid by a private equity firm.

Merrill Lynch has predicted that the company will change hands at 2450p a share, which would value it at more than £2.3bn. At this price it is thought that only a financial buyer such as a bank or private equity group would have sufficient capital for a bid. One City source said: “If it gets into a bidding war then trade buyers won’t be able to compete.”

One likely bidder is HBOS. This bank, which has already bought housebuilder McCarthy & Stone, has been linked to Wilson Bowden as far back as September.

Other financial groups that have shown interest in the sector include Barclays Capital, Permira and Blackstone.

Interest in Wilson Bowden was triggered in July when David Wilson, the chairman, said he had appointed NM Rothschild to review his family’s 33% stake in the business which, at current value, would be worth £660m.

If Wilson Bowden is put up for sale, it is likely to be a long and competitive process. Privately owned Linden Homes, which put up a for sale sign in September has just started a new round of bids.

n House price inflation reached its highest level in 17 months, according to figures from the Land Registry. House prices across England and Wales rose 1.2% in October, taking the annual rate of increase to 7%. London had the highest growth rate at 9.6%.

The private equity factor

Share prices have soared in the housebuilding sector as private equity firms stalk businesses and the takeover rumour mill goes into overdrive.
The watershed came in June when two private equity consortiums fought over McCarthy & Stone. HBOS ended up paying £1.1bn for the firm, which helped to fuel interest. HBOS had previously approached Crest Nicholson. Barclays Capital is also a big investor in the sector: it bought 34 million shares in Taylor Woodrow in October.
The industry will have to wait to see if private equity investment is beneficial in the long term. This week Richard Lambert, chief executive of the CBI, said he was concerned about the financial structures of private equity companies, as they carry a lot of debt and could be hit if interest rates continue to rise.