A done deal, but is it a good one?

After making a success of his takeover of Mowlem (despite deep scepticism in the City and a due diligence procedure that was notably short on due diligence) he has sealed the deal for Alfred McAlpine. With this, he has created a £5.3bn-turnover business that is snapping at the heels of Balfour Beatty.

After McDonough signed the Mowlem deal, two problem contracts came to light and led to a £90m writedown on its assets. He got away with that because of the value of Mowlem’s PFI contracts, in particular the £4bn Allenby and Connaught scheme for the Ministry of Defence. He is confident that McAlpine has no such skeletons in the closet, but neither has it got a safety net – its PFI division was sold off in November 2007. And its £554m price tag was also on the high side.

One parallel with Mowlem that does hold is the demoralisation of staff in the organisation being bought: senior managers in rival contractors have had their inboxes clogged with CVs from McAlpine people. This means that McDonough has to perform a balancing act. On the one hand, he wants to put his people into controlling positions, but on the other he insists that he doesn’t want to repeat the exodus of the 300 that followed the Mowlem deal.

The trick will be to make sure the best people stay in McAlpine’s excellent support services businesses; they are essential for McDonough’s future business strategy. Here he has a pretty good pony to sell: Carillion has exciting plans to expand in the Middle East and Canada, and the takeover itself shows that it is a dynamic, ambitious company – certainly more so than their former employer. All he has to do is convince his new employees that they have enviable careers within it and he can consider this takeover a success, too.

Because they were too many

News that contractors are streamlining their supply chains has set off alarm bells for specialists. Wates now spends 80% of its money on 500 companies and Costain aims to slash its 18,000 suppliers to 3,000 by the end of the year (page 40). To remain on these lists, specialists will have to jump though all kinds of hoops. But this may not be as sinister as specialists suspect. Contractors argue that their motives are to improve relationships and foster innovation. Indeed, those that make it will be paid on time, given a clear picture of forthcoming workload and involved early in projects – all things that specialists have long lobbied for. Ibex’s scheme is a case in point (page 16). Recognising that suppliers often don’t have funds to buy materials at the start, the firm will pay them early and won’t demand retentions. Now that’s progress.

Denise Chevin, editor