Amec: a buyer's guide

Amec's clearance sale is underway. The group's £1.3bn-a-year Built Environment division is on the market and buyers are about to be offered a closer look at the books.

The mooted sale value is £360m, but will that be achieved?

The two big questions are: who would be interested in buying this massive business, and how will suitors evaluate Amec's worth?

Recent acquisition history offers clues and examples that provide useful parallels. These are John Laing Construction, put up for sale in order to keep Laing group afloat, and Mowlem, where a timely intervention by Carillion saved the day.

In the cases of both Laing and Mowlem, a famous construction name had come off the rails. Once the deals had been secured, would their buyers be seen as foolhardy or shrewd?

Laing's top team was full of arrogance as it announced the sale of its construction division, making it clear from the word go that it would disdain offers from anyone other than a big continental name. But there was no appetite from overseas and O'Rourke found itself in a field of one.

Ray O'Rourke played a marvellous game, freezing on the final handshake moment until he had won every concession he needed: the massive pension deficit was left behind in the Laing Group and he also jettisoned the potential liabilities on former projects.

The winner

As a consequence, Ray O'Rourke pushed forward into clear waters at a cost of just £1. It was a star deal.

By contrast, Carillion was viewed as having over-paid for Mowlem. Sure, it was a fire-sale, only this time there was a two-way fight as both Carillion and Balfour Beatty wanted the cake.

Did Carillion get its sums wrong? After a string of announcements of exceptional losses and with its bankers pushed to their debt limit of £130m, Mowlem was said later to have been just three weeks away from collapse. So was Carillion duped into paying £400m, including debt? Was it panic and a result of a rushed deal?

In hindsight, Carillion believes it played a sound game and got a good deal. Since the purchase, it has doubled in size, is now a £4bn-a-year player and is firing on all cylinders.

But even after five earlier write-downs, Carillion knew Mowlem's figures were less than sound and the need for a further £80m of adjustments was anticipated. As was the further collapse in the finances of Mowlem's £94m Exeter Schools PFI and the £495m Dublin Port Tunnel projects between the end of due diligence and formal acquisition.

If an Amec suitor can engineer an uncontested offer period, it will get a better picture of what lies below the surface. Carillion needed to hold Balfour at bay and it had only three weeks to decide how much to pay.

Believing the figures

No matter how the competition pans out, Amec's suitor won't have time to visit every Amec project and at the end of the day it will have to believe Amec's figures.

And Amec can keep everything moving as, where necessary, it can offer a dowry thanks to its massive PFI equity and property development portfolio - valued at £211m.

What the world overlooks is that Mowlem offered a dowry too - the substantial £5bn Allenby/Connaught PFI defence project.

The anticipated profit, discounted to net present values, runs to £200m. That's half the price Carillion paid for Mowlem. No wonder it's still smiling.

But what's on the cards at Amec? We can expect the non-appearance of a foreign contractor looking for a foothold in the UK. After all, Skanska was the last entrant and how long ago was that?

Rather, we should look in the direction of Henderson, the London-based fund manager, or a private equity group backed by a wall of money and eager to dive in for the Built Environment's highly valued PFI equity portfolio.

Cherry picking

In that case, back-to-back deals will follow as Amec's various operations are split and sold separately. Some, such as Amec's M&E specialist Matthew Hall, already have a suitor. Others could need a dowry.

With Amec's PFI equity worth £211m, or even a figure higher than that, a parting of the ways is the most likely outcome.

MONEY TALKS: Will Amec chief executive Samir Brikho get the right price for Built Environment?

What's up for grabs in the sell-off

Item Estimated price

PPP portfolio (book value £66m)£211m

Construction business

- UK civils (£30m)

- M&E, fit-out and hard FM related to building and asset management (£120m)£150m

Total £361m

Source: Citigroup company analysis