Previous post:

Next post:

Acquistions, due diligence and financial geekery

by Mel Starrs on September 30, 2011

in Industry gossip

So the big news story of this week (for me, anyway) was the CH2M Hill £230m acquisition of Halcrow:

Workers at Halcrow are to share the spoils after the engineering consultancy decided to end 143 years of independence with an agreed sale to CH2M Hill, a US peer, for £230m including debt.

Pre-tax profits at Halcrow almost halved to £8.8m last year on sales of £468m, down from £508m the year before. Projects were cancelled or put on hold and margins came under pressure in the UK and the Middle East, the company’s biggest markets.

Halcrow warned in its annual report of “extremely tight bidding from our competitors” and shed more than 500 staff in 2010. The group had net pension liabilities of £65m and net debt of £34m at the end of the period.

Why should I be so interested? I worked for Halcrow 2001-2006, the longest I’ve ever worked anywhere. With this acquisition, yet another of the engineering firms I’ve worked for have been acquired by a non-UK rival. Obviously, I am NOT the common factor in these transactions – it is merely a sign of times but look at the evidence:

  • Whitby Bird now Ramboll (Danish)
  • Babtie now Jacobs (US)
  • Faber Maunsell now AECOM (US)
  • Halcrow to be CH2M Hill (US)

The only engineering firm I’ve worked for which is still UK and independent is Max Fordham (and there’s some good reasons for that which I’ll come on to). All of the changes took place after I had moved except in the case of FM/AECOM which was transitioning whilst I was there.

I am not alone – the FT article I link to above lists a number of other acquisitions over the past few years and names a few other UK companies which might succumb to takeovers (by the way, in an odd synergy I’ve been on holiday this week reading Stephen W Frey’s The Takeover – a rollicking yarn from the mid-nineties about a WASP conspiracy involving a leveraged takeover threatening to destroy the US economy – oddly relevant given current global financial turmoil – but I digress).

So how do you as an employee insure against choosing to work for someone who is going to be taken over? One way is to dig into the financials and see what you can find.

This topic fascinates me and is one reason why I did an MBA. Disappointingly, MBA’s generally focus on publicly listed companies as data is much more readily available (and hence able to be analysed) than for privately owned companies, which make up the vast majority of companies in the construction sector. That said there are a few places you can go to find out the information required for a due diligence exercise when checking out future employers.

Webcheck at Companies House will allow you to order information on any company in the UK including their financial records. I’ve chosen to link to Max Fordham as they are a good example of how to buffer against takeovers (it would really wreck this post if they get taken over – I’m guessing they won’t, but never say never). Each document will cost £1, so a small investment of time and money required to undetake the exercise.

So what should you look for?

Firstly, who owns the company? How many people and what proportion of shares do they own? What age are the shareholders? There’s a huge difference between a company with a founding member holding over 60% of the shares in their mid-fifties or sixties to a broad ownership across the management/company with a wider age range. Max Fordham’s have a very broad ownership with mixed age range – which is becoming a common means for many companies of ownership.

Secondly, look at the money. Profit in this industry is not a particularly great indicator (especially in our current times), so focus on cash flow, liquidity and assets. If this is all a foreign language to you, I can highly recommend FT Guide to Using and Interpreting Company Accounts (The FT Guides) – again the book focus is on publicly listed companies but it’s a great resource for understanding the numbers. This may be a level of geekery too far – alternatively do searches on FT, but unless the company in question is publicly listed (eg: has publicly traded shares) it’s unlikely to make the news.

If you’re not that bothered by who you will work for this time next year, don’t sweat it. If you are, do your research.

So, anyone taking bets for who’ll be next in the acquisition sights?