Mike Newton, managing director of Amec subsidiary Watson Steel, stepped down to pursue other, undisclosed interests last Thursday. Watson’s finance director, Steve Rudman, also left the business.
A day later, Kvaerner completed the £8.2m sale of its Cleveland Bridge business to an eight-strong management team.
News of the Watson Steel departures prompted speculation that Amec was planning to follow Kvaerner’s lead and sell its £100m-turnover steel business to managers. However, Amec insiders thought this was highly unlikely.
Roddy Grant, Amec’s joint managing director of capital projects, will replace Newton as managing director, and Watson’s director of operations, John Rawlinson, will take over the day-to-day running of the business. Newton had been in his post since October 1997. Rudman’s departure is believed to be unrelated. He is replaced by Matt Plant.
Watson and Cleveland Bridge, which operate at the heavy end of steel construction, have been hit by the strength of sterling and so have concentrated on work in the UK.
Overcapacity in the domestic market has led to lower margins and, despite a recent upswing in activity, industry insiders say many steel fabricators are vulnerable.
Watson is believed to have a full order book to the end of the year. However, an Amec insider said: “The business has underperformed despite a busy market. It is a very high overhead operation.”
For Cleveland Bridge, growing financial difficulties were key to Kvaerner’s decision last year to sell the £120m-turnover business.
The UK steel market is really tough at the moment
Tony Rae, Cleveland Bridge
Following the management buyout, the business will employ 2000 staff and be headed by former commercial director Tony Rae, who secured the business free of debt.
A Kvaerner spokesperson said it had made a small accounting loss on the sale.
Rae said the deal had taken 12 months to complete from the day he made his original offer to the Kvaerner board.
Rae, who plans to expand the firm’s international presence, particularly in the USA and China, said the UK market was extremely fierce. “It is really tough at the moment,” he said.
As part of the deal, Rae’s team is buying a 49% stake in Cleveland Bridge’s Middle East business, based in Dubai. It is expected to complete the purchase in the next two months.
Rae also intends to acquire and integrate small specialist companies that either manufacture or own licences for specific products or services. This will be seen as a signal that struggling smaller players may start to be swallowed up.
Talk of a shake-out of steel contractors has been rife for some time because of overcapacity. In April, structural steel group Wescol saw its share price drop 26% in a day after warning the City that intense price competition would hit its second-half margins.
Kvaerner signalled the direction of its future acquisition strategy last week by buying Whessoe LGA Gas Technology, a project management firm involved in building liquid natural gas stations. The decision to buy a design-led, high-margin scientific specialist business mirrors previous moves by Amec and Bovis Lend Lease.