It’s a matter of survival of the fittest, says M&A expert

The company has compiled a study of the UK’s top 2,000 construction companies with valuations and assessments on their future prospects.

Plimsoll has identified 537 companies which it says would make good strategic acquisitions and 415 which are failing. And there are 954 that have built up a stock resource of cash.

Senior acquisition analyst David Pattison says that potential buyers should steer away from the failing firms and go for the stronger ones. ‘For years, acquisition activity in the construction industry has been driven by distressed fire sales,’ he says. ‘Acquirers have been content to snap up bargain basement companies, often getting bad deals, paying peanuts and getting monkeys. This attitude needs to change.’

Pattison advises the cash rich to buy one of the 537 strong companies, and then to push out the failing firms. ‘This may sound harsh but if our industry is to develop and evolve then there needs to be casualties’.

Meanwhile, at the other end of the scale, small businesses are feeling the pinch from rising credit and interest rates, according to a survey of 728 firms by the Small Business Research Trust and the Forum for Private Business.

A total of 74% of companies with debts reported an increase in lending rates over the past six months and 59% said rising interest rates had had a negative or very negative impact on investment. Medium-sized businesses recorded the greatest drop, with the net balance of firms investing falling from 27% to 9%.

Cash flow is a problem: of 96 construction firms, 29% said credit restrictions had had a negative impact on their business.