Credit crunch spreads to medium-sized housebuilders

The collapse of two £100m-plus turnover housebuilders this month shows that medium-sized companies are no longer safe, industry sources have warned.

The claim follows the demise this week of housebuilder and contractor David McLean which had a reported turnover of £254m and Northern Ireland group Taggart Holdings last week, which turned over €164m (£131m) in 2006.

According to figures from the Home Builders Federation, David McLean was the UK’s 30th largest housebuilder by turnover in 2007 and Taggart was number 33. Both were ahead of listed companies Telford Homes (35) and Oakdene (72).

David McLean, which is based in Flintshire and employs 320 staff, became the biggest construction casualty of the credit crunch after it collapsed with up to £100m of debt.

According to one source, it was pushed under by a mixture of the weak housing market and “one or two problem contracts” in its contracting arm. Its contracting business, David McLean Contractors, will close; administrator Deloitte is seeking a buyer for the £124m-turnover housebuilding division.

Meanwhile, a source familiar with Taggart said it had paid the price for growing too quickly and building on unviable sites. Administrator Pricewaterhouse Coopers refused to confirm reports that the company has debts of about £150m.

Robin Hardy, an analyst at KBC Peel Hunt, said: “This is a wake-up call for the small and medium-sized guys that the banks will play hardball if they think they can get their money back. This is different to the last recession because there is not the resource of mortgage availability to fall back on.”

Another financial source predicted several more companies of a similar size would go bust in coming months. But he said the credibility of a company’s management team should not be underestimated as a factor in the banks’ thinking.

“A big part of the decision on whether to pull the plug is based on whether they believe in the management team. They are tending to support companies where everything is transparent and above-board.”