Amey sale: management faces tough task, analyst warns

Amey’s new owner faces a major challenge to achieve the kinds of returns it would like from the company, an expert has warned.

Current owner Ferrovial announced yesterday it had reached an agreement to sell its stake in the contractor, aside from its waste treatment business.

The buyer is a company controlled by funds managed by private equity firm One Equity Partners, which is working with fellow private equity firm Buckthorn Partners on the deal.

It has been agreed at £400m but the final value will be adjusted along with Amey’s net debt and working capital figures at the date of completion.

DRS Bond Management director Chris Davies told Construction News its management has a big task in front of them.

He said: “£400m is an interesting price that on paper seems to suit all parties. In my experience, private equity and the construction sector are not well suited.

“This is not a reflection on Amey, their management team or order book. Private equity is typically predicated on an internal rate of return of between 25 per cent and 40 per cent over three to five years.

“Over three years at a 25 per cent internal rate of return, their minimum expectation should be to grow the enterprise value to at least £781m at resale. That is punchy to say the least given the prevailing macroeconomic and geopolitical picture.”

He warned that the longer private equity remains involved, the more they expect to make when they come to sell the company on.

“Trying to double the EBITDA [profit] of a business is extremely challenging in a soft market with a strong competitive advantage. This is multiplied several times over in construction.”

Applied Value consultant Stephen Rawlinson noted the publicly quoted arena has tended to shun the utility service and maintenance sector.

He added: “You’ve had Balfour Beatty withdraw from gas and water sectors and increasingly also the larger publicly quoted entities are taking on board more of the mainstream design and construction work as opposed to the maintenance work.”

Rawlinson described Ferrovial as having “made a complete Horlicks of Amey since they bought it in 2003”. He said the move would enable the Spanish multinational to focus on a different UK strategy, including building highways, water and toll roads.

Ferrovial has been attempting to sell Amey since 2018, as the extent to which it was losing money on its £2.7bn highways contract with Birmingham City Council was becoming clear. The deal was terminated in 2019, 14 years early.

Speaking to CN last November, Ferrovial Construction UK managing director Karl Goose said selling Amey would give its own contracting arm new areas to work in, such as trackside railway work.

Rawlinson added: “Ferrovial still has those asset-based businesses [like water], which is what the corporate HQ in Madrid wants to see and not the fingers and thumbs on the ground kinds of businesses which fix pipes and electric cables together.”

The sale is subject to regulatory clearances and is expected to take place by the end of the year.

Leave a comment