Richard Steer on Aecom's takeover of Davis Langdon

This week we learnt that one of the worst kept secrets in construction has proven to be true. Davis Langdon are to be taken over by US engineering giants Aecom. While I predicted that a number of the smaller and medium-sized QS consultancies would pass into the hands of foreign competitors, the news that the largest of our UK practices is now in US ownership has shaken all of us who work in the sector. It would seem that the choice was stark: sell and survive or end up in hock to the banks.

Savant International was the last UK practice swallowed by Aecom, a minnow in comparison to Davis Langdon. DL was the largest UK-managed, multi disciplinary consultancy of its type, with around 2,200 people in 30 offices throughout the UK, Europe and the Middle East, and around 5000 people in 100 worldwide. 

It would seem that the choice was stark: sell and survive or end up in hock to the banks.

Established in Holborn in 1919, they have expanded, grown and developed in a way that would have made founder Horace Langdon choke on his cornflakes. In 1998 the strength of their Asian offering was recognised when they became Davis Langdon and Seah International.

They have pursued an expansionist policy that proved a winning formula in the good times and vice versa in the bad. Industry commentator Peter Bill writing in the Evening Standard newspaper noted back in April that globalisation and debt could be the main things driving a possible sale.

It is not as though they did not see it coming. Back in 2008, when announcing a restructuring, their senior partner was quoted as saying: “Our ambition is to take the next step forward. We’re trying to put ourselves in the best possible place to counter attempts to buy us.”

Though not officially confirmed by anyone in the business it would seem that the crash of 2008 sent seismic shockwaves through Davis Langdon who, like the rest of us, could not have imagined such a sudden decline in business.

Some have speculated that DL moved too quickly in their desire to expand abroad and in retrospect the purchase of architects DEGW could be questioned although they clearly thought they could afford it. As it transpired the recession was global not local and the demise of Dubai and the Middle East brought massive pressure for those investing heavily in the region.

It would seem that the crash of 2008 sent seismic shockwaves through Davis Langdon

So, now that Davis Langdon has gone, how does it affect the rest of us feeding at the same cost consultants waterhole being eyed by hungry predators? Those QSs who are listed on the stock exchange clearly offer the easiest target, since their share capital is for sale at the right price.

As a defensive measure EC Harris announced that they want to float on the market by 2013, with a striking caveat that they need to see the £310m turnover business reach £500m before they go public. An increase of around 30% over three years at this time is ambitious and may not offer the degree of security they hoped to foster, but it gives us some idea of the mindset that is now out there.

I guess they would gamble that if the indices continue to rise they become more expensive and, with the construction market starved of government spending for the foreseeable future, many of these firms could represent a significant risk for a potential bidder – and therefore be less attractive than where the equity is all owned in-house.  Others, like my own business, with a sophisticated partner agreement (not unlike DL) make takeover negotiations a significant challenge for a potential buyer.

Those that are smaller and struggling may find the banks become a little more sympathetic as public and political pressure grows to increase lending, but alas for many I suspect it is already too late and either foreign ownership or UK consolidation awaits.

For those remaining it may well prove to be a good thing that a major competitor has been taken over by a large multi-conglomerate monolith based in Los Angeles with 45,000 employees. Some of the talent in these takeover targets often finds it difficult to adapt to a change in circumstances, working methodology and status. They may well wish to move back to practices with a British ethos and a familiar culture.

Some of the talent in these takeover targets often finds it difficult to adapt to a change in circumstances

As David Cameron memorably said on a visit to America recently, we in the UK are the “junior partner” in our relationship with the USA, and so it is true for those executives at a senior level who have been used to managing their own destinies. They may not like being governed by the corporate mantra emanating from the West Coast and these people represent a rich talent pool with their own networks and experience.

The headhunters will have already been put on speed-dial by many of these previously loyal employees. Others see enhanced opportunities, greater security and the chance to enjoy global travel.

Likewise, from the client perspective, some may welcome the larger, massively resourced opportunities that are now available via a one-stop-shop approach to design, manage and build.

Other clients with be horrified and will want to work with consultancies where they are treated as people, rather than job numbers, and where they have contact with the top people who run the business serving them.

None of us know the future, but what is clear is that this week we have seen a game changer in our industry and I predict that despite assurances to the contrary it is not just the business founded by Mr Langdon in 1919 that will be very different by the end of 2011.