HOUSEBUILDER Miller Group has sold its construction division to listed rival Galliford Try in a move seen as a “clearing of the decks” ahead of a possible float by the private equity-backed firm.
Galliford, owner of fellow Edinburgh-based builder Morrison, has paid almost £17 million for the business, which generated sales of £408.7m last year but fell into the red after suffering losses on a small number of contracts.
The sale follows a strategic review launched by Miller in March, when chief executive Keith Miller said an initial public offering (IPO) could be on the cards amid the resurgent housing market. Speculation grew last year that the builder was weighing up a possible £400m float or trade sale to provide an exit for private equity firm Blackstone, which owns a 55 per cent stake.
Although the group has yet to make a final decision on pursuing an IPO, a source said today’s deal could be interpreted as a “clearing of the decks” as it slims down ahead of a market debut.
Miller chairman Philip Bowman, who oversaw the sales of ScottishPower and Allied Domecq to foreign owners, said disposing of the construction business would allow it to focus on housebuilding and commercial property.
He added: “The acquisition of Miller Construction by Galliford Try will provide it with a strong base from which to grow its competitive position and continue to serve its clients.”
Galliford is paying £16.6m for the business, which employs about 700 and racked up an operating loss of £4.6m in 2013, compared with a £3.2m profit the previous year. The deal will see Galliford’s order book double to £2.8 billion, but will lead to one-off restructuring costs of £4m as the group, which employs about 4,000 people, seeks to squeeze out annual cost savings of £7m.
Ken Gillespie, chief executive of Galliford’s construction division, acknowledged there would be a limited number of job losses as a result of overlapping support functions, but insisted there would be “no impact whatsoever on our project-based people”.
He added: “In these sorts of transaction, it’s the duplication ‘back of house’ where the efficiencies come from. If there were any synergies they would come from both sides, not just Miller.”
Gillespie, who was managing director at Morrison Construction before it was taken over by Galliford Try in 2006, told The Scotsman: “One of the barriers to growth in my industry is people, and Miller offers a significant amount of great quality people. We were very encouraged by the talent and leadership.”
He said the acquisition was a “great strategic fit” as Morrison is part of the Scottish Futures Trust’s “hubs” in south-east and south-west Scotland, under which public sector bodies bundle contracts together to save money, while Miller is a shareholder in the “hub” for the north of the country. Although existing projects will continue to trade under the Miller name in the short term, Gillespie said it will gradually be phased out in favour of the Morrison brand in Scotland.
He added: “I’ve grown up with the Miller and Morrison brands and it’s very exciting to bring them together. I’ve always had admiration for what Keith Miller has achieved, so it was a little odd to be sitting across the table from Keith acquiring his business.”