Mike Gurner, the man who sold the Longley name for £1, says smaller regional firms no longer have the financial muscle to take on design-and-build risk.

The venture capitalist who this week sold the name of collapsed contractor James Longley to Kier for £1 believes other small regional firms are about to go into receivership or sell out to the regional operations of their national rivals.

Mike Gurner, a director of venture capital firm Postern and former chairman of Longley, said that small firms did not have the balance sheet strengths to take on big jobs. “Frankly, businesses like this have not got the cash resources, so if they take a hit, they can’t handle it,” he said. Longley, based in Crawley, West Sussex, had a turnover of £38.5m in 1998.

Kier, which is poised to buy the firm, is in negotiations over six of its contracts totalling about £7m. It said it intends to take on 45 of Longley’s 160 staff and site operatives.

Longley’s collapse was precipitated by a loss of several million on a £35m football stand it was building for Chelsea FC. Gurner, whose firm took over after the football project, said: “It was the Chelsea contract that brought it to its knees; we took over a hell of a mess.”

Longley went into administrative receivership last month. This followed losses of £3.6m in 1998 compared with a profit of £511 000 in 1997.

Businesses like this have not got the cash resources, so if they take a hit, they can’t handle it

Mike Gurner

Gurner said the trend for design-and-build work had hit smaller contractors hard. “The industry has got a lot worse for firms like Longley,” he said. “Times are very busy but under design-and-build, contractors are taking on too much risk and margins are not what they were 12 years ago.”

Gurner said Postern had lost about £300 000 because of its 92% stake in Longley. He predicted a spate of consolidation as smaller firms were swallowed up by larger players such as Kier.

Richard Side, deputy managing director of £600m-turnover Kier Regional, said he expected to reduce Longley’s sales to £7-8m and to integrate the firm into Kier’s Wallis subsidiary, which has a turnover of £70-£75m. Longley marketing director Graham Todd will become general manager. Chief executive Alan Mackinnon has left.

Established in the 1860s, Longley was one of the country’s oldest family firms. Side said: “It is a classic story of a good old family firm that didn’t really adjust to the recession and has been mortally wounded. It has been staggering along for some time.”

Its collapse follows that of a number of other high-profile smaller firms in the past nine months, including CJ Sims, Porter Builders and Fearnley.