Analysis: ISG strengthens its retail presence in deal worth up to £20m

Construction services group ISG has bought £160m-turnover regional contractor Pearce Group in a deal which could be worth over £20m.

ISG has paid £12.75m for the business, with a further deferred consideration of £9m to be added over the next two years depending on performance.

The purchase of Pearce, which specialises in retail, further strengthens ISG’s presence in the sector following its recent acquisition of Cathedral.

Pearce has two divisions: an £88m-turnover national food retailing division which works for clients including Tesco, Marks and Spencer, Sainsburys and Asda; and a £70m regional construction business which operates in the west country and South Wales.

The construction business expands ISG’s regional coverage from the south, east and north into the west of England and South Wales. It will also add to ISG’s affordable, social and student housing capability.

Colin Forrest, chief executive of Pearce, will remain at the company and will join the ISG group managing directors operational board.

In the year to 30 April 2007 Pearce, which has its head office in Bristol and employs 350 staff, reported turnover of £158m and profits before tax of £2m. The company’s secured work at September 2007 for the year to 30 April 2008 stood at £147m.

David Lawther, ISG chief executive said that the company would continue to seek acquisitions as part of its growth strategy. He said: “The shape of the business is now markedly different from that of two years ago. As well as organic growth, ISG will continue to look for further opportunities to strengthen and diversify the business by acquiring strong management teams and business brands such as Pearce”.

Panmure Gordon reiterated its buy status on ISG following what it described as a strong acquisition. In a research note the company said: “The performance at Pearce is on an upward trend following the appointment of a new CEO a couple of years ago. The geographic fit is strong and the acquisition also increases the group’s presence in the social housing and leisure markets”.

The combined company at a glance: Highlights

£925.2m turnover
£180m national retail business
£300m regional construction business
International fit out and project management operation with 10 offices in Europe and Asia

About Pearce Group Ltd

Established in 1922 Pearce Group Ltd was a listed company until 1985 when it was acquired by Crest Nicholson. In 2003 it was bought out from Crest Nicholson through an MBO.

Pearce Group Ltd’s retail division acts for the UK’s leading food retailers such as Tesco, M&S, Sainsbury and Asda typically under long term framework agreements.

Independent research conducted for ISG has identified a number of UK food retailers planning to invest significant amounts on their retail estates over the next 5 years - either by building new units or on upgrading their existing portfolio. Pearce Group Ltd is well placed to benefit from these capex programs.

Pearce Group Ltd has a significant track record of operating in the West Country and South Wales over many years.

In particular the regional division has a track record of procuring industrial and education facilities as well as in leisure.

The division has also made important inroads into providing new build affordable housing and refurbishing student accommodation in the region.

Major commercial clients in the region include Rolls-Royce, Gerber Juice, Esporta and Clarks Shoes; and the MoD, Aspire Defence, Sovereign, Source and local authorities and colleges in the defence, housing and education sectors.