Safety in numbers

Are the upper echelons of the UK consultants re-enacting the Hollywood sci-fi classic Invasion of the Body Snatchers? Over the past 18 months strangely named foreign groups have swallowed up four of the industry’s most venerable white collar firms, together employing more than 20,000 staff. Rivals and clients alike have been asking whether this bulk buying will
de-personalise the professions.

Davis Langdon, Scott Wilson, Halcrow and, most recently, EC Harris have sold themselves to a succession of US and Dutch groups, which together have paid a combined £700m or so, essentially for the talents and reputation of the acquired companies’ professional staff.

The 1956 film depicts an extraterrestrial invasion in a small Californian town. According to Wikipedia: “The invaders replace human beings with duplicates which appear identical on the surface but are devoid of any emotion or individuality.”

Fellow Building columnist Richard Steer may well see parallels. In his 17 October column the chairman of doggedly independent rival Gleeds laments “massive industrial machines that offer a one-size fits all service” preying on our “independent, solid, reliable” consultants.

He may have a point, up to a point. The buyers all have alien sounding names that might have been cooked up in chemical laboratories or marketing offsites: URS, CH2M Hill, Arcadis and Aecom. Their cultures and vertically integrated structures appear to differ radically from the British model, which still largely rests on independent, specialist advice for third party clients.

Steer counsels “that because something is big it does not mean it is necessarily better”. But in this regard he may be doing something into the wind that we boys have been warned not to. In all of construction’s sub-sectors - contracting, housebuilding, merchanting and, most spectacularly, materials - consolidation, much of it cross-border, has been inexorable.

The buyers have variously argued that the attractions of the deals include increasing economies of scale, established skills and reputation, plus geographical diversification, particularly in new markets such as India and China (35-70% of the companies’ staff are overseas). To an extent, their quarries’ hands have been forced by issues such as tougher times, lack of critical mass and looming pension liabilities. Although the argument for independent, specialist skills holds for many clients, others have called for “one-stop-shops”. Recent evidence suggests the latter trend is the dominant one.

Financial details of the deals have been limited. But since they have been made largely for human expertise rather than predicated on the latest year’s post-tax earnings, it is worth considering the price paid relative to the number of professional staff.

The four transactions have brought in about 20,312 staff in total, and, more relevantly, 5,238 UK chartered staff, according to the Building consultants’ league tables in the last year of each company’s independence. That works out at around £133,000 per UK chartered employee, at a guess two to three times their annual salary. (Using publicly reported purchase prices, where available, the rate works out at £224,000 for Davis Langdon, £118,000 for Halcrow and £158,000 for Scott Wilson).

The risk for the buyers is that either those staff will seek pastures new or clients can migrate to more traditional firms. That suggests the acquirers may have to cosset their new staff to a degree and avoid scaring clients with too much US-style MBA rhetoric. Or they should think about too hastily dropping names with decades of heritage - and customer loyalty.

Rumours abound that further deals could happen in the sector. Independent companies may well look with fear or envy at their newly reinforced rivals, while, at least at partner level, there may be a temptation to cash in their chips before the chill winds of economic turmoil erode the purchase prices that the four British companies have extracted.

One grouping that has been eyeing consultants has been the major contractors. Balfour Beatty acquired US giant Parsons Brinckerhoff (proving the flow is not entirely one way), while Costain bought ClerkMaxwell and Promanex having been (mercifully, it seems) rebuffed by now-floundering Mouchel. The aim has been to offer a whole-life service from conception, through design and construction management to maintenance and operation of facilities.

Expect also mergers of like-sized consultants in order to beef themselves up against what threatens to be increasingly dominant sector leaders.

One group, however, may miss the party: architects. The firms acquired have styled themselves as multi-disciplinary construction consultants, but at heart are QSs or engineers. For who knows how many reasons, acquisitions of architectural firms have rarely worked. In this corner of the consultants’ world, size doesn’t really count that much. Or put another way, there is less strength to be had in numbers when workloads shrink.

Alastair Stewart is a construction analyst