Morgan Sindall Group Regulatory News (MGNS)

4 Jun 2007 07:02

Morgan Sindall PLC04 June 2007 Morgan Sindall plc Acquisition of Amec Developments Ltd and Amec Design & Project Services Morgan Sindall plc ("Morgan Sindall" or the "Company"), the construction andurban regeneration group, is pleased to announce that it has agreed to acquirefrom Amec plc (the "Acquisition"), Amec Developments Limited ("ADL"), amixed-use urban regeneration business, and the assets and certain contractsrelating to the Design and Project Services division ("DPS"), a nationwideconstruction and engineering business. The Acquisition • Strengthens three of Morgan Sindall's four divisions and significantly increases the Company's scale and capabilities • Creates a leading, UK-wide urban regeneration business - ADL to operate as standalone division aligned with Morgan Sindall's Affordable Housing division - Brings large scale urban regeneration skills to Morgan Sindall in long-term growth market • Transforms Group's Construction division, creating an integrated design and delivery business • Significantly develops Morgan Sindall's Infrastructure Services division's market leading position particularly in the tunnelling and water sectors • Enhances earnings in current financial year* • Increases Group's pro forma forward order book at 31 December 2006 to £4.1 billion Consideration • Morgan Sindall will pay Amec the net asset value and £55 million goodwill associated with ADL and DPS • Combined net assets at completion are expected to be a liability of £29 million, which includes cash of £8 million • Consideration payable by Morgan Sindall is £26 million, with the net cash outflow of £18 million to be met from existing resources Commenting on the Acquisition, Morgan Sindall Executive Chairman, John Morgansaid: "This acquisition is a key strategic next step for Morgan Sindall. Itsubstantially adds to our existing divisions and opens up significant growthopportunities in our construction and regeneration markets. Morgan Sindallrepresents an excellent home for ADL and DPS and their employees and customersand we look forward to developing further the enlarged group." \* This statement should not be interpreted to mean that Morgan Sindall's earningsper share for the current or future financial years will necessarily match orexceed the historic published earnings per share AN ANALYST CONFERENCE CALL WILL BE HELD THIS MORNING AT 8.30 AM. THE DIAL INNUMBER IS 0845 245 3471 AND THE CONFERENCE ID IS 3091887. PARTICIPANTS CANACCESS A PRESENTATION THAT WILL ACCOMPANY THE CALL THROUGH THE COMPANY'S WEBSITEwww.morgansindall.co.uk 4 June 2007 Morgan Sindall plc Acquisition of Amec Developments Ltd and Amec Design & Project Services Introduction Morgan Sindall plc ("Morgan Sindall" or the "Company") is pleased to announcethat it has agreed to acquire Amec Developments Limited ("ADL") and the assetsand certain contracts relating to the Design and Project Services division ("DPS") from Amec plc (the "Acquisition"). The Acquisition is in line with Morgan Sindall's stated strategy to develop agroup with market leading positions in its chosen sectors. ADL and DPS are anatural fit with Morgan Sindall's Affordable Housing, Construction andInfrastructure Services divisions. The Acquisition is conditional upon, inter alia, the approval of Morgan Sindallshareholders, which is to be sought at an Extraordinary General Meeting. Acircular with further details of the transaction will be sent to shareholders assoon as possible. Transaction summary Morgan Sindall will acquire the entire share capital of ADL and the assets ofDPS which include its current and future contracts. Specifically, Morgan Sindallhas agreed to acquire approximately 150 ongoing DPS contracts and the pipelineof future projects. Morgan Sindall will conclude certain other contracts onbehalf of Amec, that are substantially complete, and resolve any outstandingcontract obligations. Completed contracts have been specifically excluded fromthe acquisition of DPS with the exception of those relating to three keyrelationship customers. Morgan Sindall will pay £55m to Amec for the goodwill associated with ADL andDPS. On completion ADL and DPS will have net liabilities of £29m, including cashof £8m. Amec will compensate Morgan Sindall in cash for the net liabilitiesposition at completion of £29m. Consequently, the consideration will be £26m.The net cash outflow associated with the transaction will be £18m, which will bemet from existing cash resources. Information on ADL and DPS Information on ADL ADL is a mixed use urban regeneration business and has a prominent position insecuring and delivering flagship schemes across the UK. It developspartnerships in longer term, large development schemes which are multi phasedand typically have duration of between 10 to 15 years. ADL is involved in more than 30 mixed use development projects with a total areain excess of 20 million square feet. 15 of these projects are currently underconstruction. ADL's management team has a long track record in the rapidly growing urbanregeneration market and the team's combined knowledge of key market participantsis fundamental to supporting growth and sourcing new project opportunities. Themanagement team is led by Matt Crompton and Nigel Franklin, Joint ManagingDirectors supported by David Hoyle, Finance Director and Paul Parry, AssetManagement Director and they will remain with the business. ADL operates from a head office in Salford Quays, Manchester and employs 65people. It is a nationwide business with developments across the country fromDevon to Scotland. Information on DPS DPS is a construction and civil engineering business that was formed in January2006 from the integration of Amec Design and Management and Amec ConstructionServices to combine pre-construction design and project management skills withthe delivery of the construction projects. A new management team was appointedat that time. DPS operates nationwide from 5 key locations across the UK, employsapproximately 2,800 people and specialises in medium to large size contracts.Its main markets are in the education, health, defence, retail, industrial,transport and nuclear sectors. In recent years DPS has made operating losses. The formation of the business in2006 heralded a review of the processes and controls deployed in the businessand new tendering, commercial and financial procedures were introduced. Thebusiness also withdrew from bidding for fixed price road contracts and wrotedown the carrying value of work in progress on a number of historic contracts. DPS now benefits from strong visibility of revenues through the nature of itsportfolio of contracts and the excellent levels of repeat business it enjoys.Currently DPS has a contracted revenue pipeline of approximately £800 million. The management team of DPS is led by John Moss, Managing Director supported byMartin Broome, Commercial Director and Warren Underwood, Finance Director. Themanagement team are remaining with the business. Financial Information on ADL and DPS For the year ended 31 December 2006 ADL achieved an operating profit of £32.3million on turnover of £72.2 million. The operating profit included a one-offprofit of £24.0 million relating to the sale of a significant property. Over thesame period, DPS achieved an operating loss of £27.4 million on turnover of£685.4 million. The operating loss included losses of £24.1m relating tounprofitable contracts which have been completed or excluded from thetransaction. As at 31 December 2006, ADL had gross assets of £125.2 million and DPS had grossassets of £107.6 million. Background to and reasons for the Acquisition Morgan Sindall's strategy is to create market leading positions in its chosensector in order to provide long-term growth and success. This Acquisition isconsistent with this strategy and following an extensive review the Boardbelieves that it will be beneficial for the following reasons: • It creates a UK-wide leading urban regeneration business for the Company Aligning ADL's expertise in mixed use developments with Affordable Housing's mixed tenure residential skills will create a leading force in urban regeneration across the whole of the UK. ADL will continue as a standalone entity becoming a fifth division of Morgan Sindall but, together with Affordable Housing will seek to undertake joint initiatives that will significantly enhance the enlarged group's position in the urban regeneration market. • It significantly enhances the enlarged group's construction offering. The construction business of DPS will be merged with Morgan Sindall's Construction division to significantly increase the range of services offered and the geographic footprint over which the services are offered. Whilst Morgan Sindall's Construction division has traditionally focused on smaller scale assignments, DPS has focused on larger assignments. The combination of the two businesses will create an integrated design and delivery business that offers customers a full range of services nationally extending the geographical reach beyond England into Scotland. • It develops Infrastructure Services' market leading position. The acquisition will introduce Infrastructure Services to new key clients such as BAA and the MOD and strengthens its existing market position in the tunnelling and water sectors. Overall, the Acquisition further strengthens three of Morgan Sindall's fourexisting divisions and helps the Company to significantly increase its scale andcapability at a time when clients are seeking larger and more sophisticatedbusinesses to meet their needs. Most importantly, it brings large scale propertydevelopment and urban regeneration skills into Morgan Sindall, thereby allowingthe Company to enter a new long-term growth market where barriers to entry arehigh. In terms of structure, ADL will operate as a standalone division but will bealigned with Affordable Housing's urban regeneration activities. DPS's currentoperations will be reorganised to align them with Morgan Sindall's existingConstruction and Infrastructure Services divisions. Financial effects of Acquisition The Acquisition is expected to enhance earnings in Morgan Sindall's currentfinancial year and materially enhance earnings in the next financial year*. Current trading and prospects Overall, the conditions in Morgan Sindall's key markets remain positive andcurrent year trading continues to be in line with management's expectations. Afull update on current trading will be provided towards the end of June. The outlook for the enlarged group is very encouraging, with all of MorganSindall's chosen markets growing. Looking more widely the construction sector'sgrowth in the medium term is expected to outstrip GDP growth. The addition ofDPS and ADL gives the enlarged group a pro forma order book at 31 December 2006of £4.1 billion. Combining the urban development skills of ADL and the designand construction capabilities of DPS with Morgan Sindall's existing businessescreates a Group well placed to meet the full range of demands and requirementsof UK construction clients. \* This statement should not be interpreted to mean that Morgan Sindall's earningsper share for the current or future financial years will necessarily match orexceed the historic published earnings per share Enquiries: Morgan Sindall plc Tel: 020 7307 9200John Morgan, Executive ChairmanPaul Smith, Chief ExecutiveDavid Mulligan, Finance Director College Hill Tel: 020 7457 2020Matthew Smallwood/Kate Pope Close BrothersPeter Alcaraz Tel: 020 7655 3139 This information is provided by RNS The company news service from the London Stock Exchange