Shepherd Group’s agreement yesterday to sell its construction business, its M&E contracting arm and its FM business to Wates Group leaves just the Portakabin brand and two niche engineering services business, Portastor and Portasilo, in its hands.
Its small house building arm, Shepherd Homes, was sold to Galliford Try last week.
But those three retained businesses account for the bulk of the group’s 3,000 strong headcount, and apparently acted as Shepherd Group’s “profit centre” for several years.
In its most recent results, for the year ended 30 June 2014, the group as a whole made £10.1m on turnover which fell from £748m the previous year to £686m. But the Portakabin business made an operating profit of £29.7m (up 33% from the previous year) on a turnover of £218.9m (up 18%).
According to Construction Enquirer, Shepherd Construction chalked up losses of £8.2m on a turnover of £240m, results that triggered a wave of exits from the construction business, and 55 redundancies announced last week. Shepherd Engineering Services did better, however, with a £5.3m profit on turnover of £208m.
Cambourne Village College, built by Portakabin Group’s offsite arm Yorkon
A Shepherd Group spokesman told Construction Manager: “Shepherd Group’s strategy is to focus on those areas of our business which have the greatest sustainable development opportunities and to focus investment in these areas. In reality this means developing the further UK and European expansion of Portakabin. The deal will help us to reposition the Group out of construction and into manufacturing. While Portakabin Group do provide site accommodation, they are active in a great many other sectors – such as health, education, and transport.”
That overview of the deal sounded familiar to Vaughan Burnand, who was chief executive of Shepherd Construction from 2000 to 2008, and later executive chairman of Construction Excellence.
"The Shepherd family members currently controlling the company have never been keen on construction – they turned down my suggestion to call it the Portakabin Group in 2004 but it seems that’s where they are headed."
Vaughan Burnand, former chief executive of Shepherd Construction
He told Construction Manager: “The Shepherd family members currently controlling the company have never been keen on construction – they turned down my suggestion to call it the Portakabin Group in 2004 but it seems that’s where they are headed.”
With around 1,200 people due to transfer to Wates Group, Burnand commented that the end of the family-owned construction business was “sad but at least the people and projects will be run by people who want to do so”.
Wates is buying SES and Shepherd FM in their entirety, and the contracts, framework positions and staff of Shepherd Construction, with the Shepherd Group retaining a few contracts nearing completion and the company’s name.
By headcount, Shepherd Engineering Services is the largest of the three businesses acquired by Wates Group, with 670 directly-employed staff. Shepherd Construction has 275 salaried staff, while Shepherd FM has 215.
Commenting on the deal, Jason Farnell of CR Management said he believed Wates would have particularly prized the M&E contracting business, as its previous lack of in-house M&E capability could have been a potential threat to its future.
In recent years, some M&E contractors such as Mitie have exited the market while others owned by larger groups, such as Laing O’Rourke’s Crown House Technologies, have reduced their work for external contractors. At the same time, M&E installations are typically becoming more complex, and vital to projects’ “critical path”.
Farnell said: “Most construction companies are looking for ‘captive’ M&E – a lot have exited from the market, so Wates would be at a disadvantage.
“Nowadays it doesn’t make sense [for a Tier 1 contractor] to have an M&E subcontractor making their own margin. Also, 10 years ago, most M&E businesses had direct labour, but now they’re more like the Tier 1s and relying on agency labour, so it makes sense to be integrated.
“So to my mind, that’s the strategic win for Wates, while Shepherd is exiting a risky market and going into an area where they can make more money. Also, buying contracting capability in the north does also fill a gap in their geographic coverage and means they’re no longer so under-sized in comparison to other players.”
