Analysts have predicted that construction is ripe for more consolidation following the three deals struck this week.
JP Morgan analyst Mike Betts said the deals could spark mergers among the UK’s larger contractors.
He said the UK sector needed to catch up with European rivals such as Skanska, Bouygues and the group recently created by the merger of French firms Groupe GTM and Vinci.
He said: “The industry is finally consolidating in the UK. We have got to expect the UK to be part of what is happening across Europe.”
Betts said the City’s lack of interest in the construction sector was prompting UK firms to look to mergers as a way of increasing returns. He said: “You are going to see change – significant change.”
Analysts have named Carrillion, Balfour Beatty and Mowlem as three firms most likely to be swept up in future mergers. Amec is the only contractor considered big enough to resist the pull towards consolidation.
City opinion formers were also predicting that Skanska would be seeking further bolt-on acquisitions to grow Kvaerner in the UK.
Leslie Kent, construction analyst with stockbroker Seymour Pierce, said there had been talk about consolidation in the sector for at least a year.
He said: “There is quite a good medium-term future for the sector and people are jockeying for position in preparation for that.”
Merrill Lynch analyst Mark Hake said Skanska’s acquisition of Kvaerner would hit medium-sized contractors more than major players such as Balfour Beatty and Amec.
He said: “Firms such as Balfour Beatty have other facets of their business to help them. It’s the next tier down of firms that must be concerned.”
Charterhouse Securities analyst Steve Charnock said the consolidation would hit other sectors, such as building materials. He said: “We will see more of it as the market remains competitive.”
