Nick Charlton, independent commercial property consultant
For Balfour Beatty it is a missed opportunity if the merger doesn’t go ahead. In the current market there is likely to be more merger and acquisition activity and if Balfour doesn’t team up with Carillion, then someone else will. Carillion is clearly looking for a partner.
Balfour’s half-year pre-tax profit dropped 53% to £22m, so it obviously needs a more profitable business and you have to ask how they are going to turn it around? It would be preferable if these two UK firms joined forces rather than Balfour Beatty being picked up by a major European or US firm.
The biggest issue standing in the way of a deal seems to be Balfour’s plan to sell off of Parsons Brinckerhoff, and with consultancy work currently a more profitable area than building, Carillion certainly had a point in wanting to retain that.
Peter Gracia, director, Gracia Consult
I won’t have a tear in my eye if Balfour and Carillion don’t come together. It would be better for the UK marketplace if we have more major contractors to choose from and genuine competition rather than it becoming a monopoly run by a few “super contractors”. Allowing a merger at a time when the government has been saying it wants to direct more and more work towards SMEs and give them 18% of overall spend seems nonsensical.
I saw a Treasury document recently which highlighted the fact that around 50% of the majors were using SMEs to deliver most of their projects, so why shouldn’t the SMEs get the work directly? In my experience, the largest contractors don’t really build anything themselves, they only manage the construction process.
A merger would also damage competition within the supply chain, the big boys all tend to draw on a limited pool of specialist subcontractors as well as use same cost consultants to prepare tender documentation. Ever since the cover pricing scandal emerged, there has been the lingering suspicion there is lack of genuine competition in the marketplace and this would only worsen the situation.
Rob Simmons, director, Fensec Fencing & Security, Devon
A possible merger would be a mixed blessing. It might bring more stability to the market by creating a more financially secure entity, but I fear on the other hand it would create an increasingly adversarial culture similar to the worst of the 1970s and 1980s, in which case clients and suppliers beware.
As a firm, we will not deal with the large contractors any more due to their behavior towards subcontractors and suppliers over the past years. In 2012 we quoted over £6m worth of fencing work to larger companies at their request, but many wouldn’t even respond to us, and those we did do work for were always late in paying or short of payment for spurious reasons.
The City has reported that large corporates have lost 90% of their cash value in two years and at the same time their supplier payments have become increasingly extended each year. Payment terms of 120 days is not unusual and 60 plus days is commonplace. The big contractors must be very close to disaster, but are likely “too big to fail”.
Gerard Graham MCIOB, procurement manager, Wilson Construction
I have no objection to a merger – we live in a free enterprise economy and if two of the UK’s largest contractors want to merge they should be able to do so, just as small contractors are able to. This is the advantage of running private sector business in the UK. The creation of a “super contractor” could also be a benefit to the UK on the international stage, creating a higher value export business than the two firms currently have separately. This should be welcomed because improving export business is undoubtedly one of the best ways to bring wealth back into the country.
Conversely, it might be better for the domestic construction industry if both companies remain separate rather than create a huge entity that could dominate the market.
Bernard Keogh, MD, Arque Construction
Balfour Beatty’s figures have been very poor, its share price has slumped, and it’s a known fact that larger companies take longer to turn around, but rather than merge with Carillion I believe getting a new chief executive in place to implement changes and efficiencies would have been a better course of action.
Merging two massive contractors seems very bad for competition, especially as large clients with multi-million pound projects already struggle to get enough large contractors to tender. Both firms have been in direct competition for a number of contracts across various sectors, so together I doubt they would have as big a market share as they do separately.
