North-west England housebuilder Morris Group surprised the City this week by snapping up Allen’s housebuilding division for £23.8m.
The deal means that privately owned Morris has nearly doubled its turnover to more than £100m. Managing director Mike Gaskell said his firm would have languished as a medium-sized housebuilder without the acquisition.
He said: “The way things are going, there are definitely economies of scale in housing, in terms of research and development, marketing and buying power. When you are only building 500-600 units a year, you are in no man’s land. People are asking ‘where is this company going?’”
Analysts expressed some shock at the sale, saying they expected the arm to be sold to one of the big quoted housebuilders.
Allen’s housing arm, which has seven offices and 100 staff, increases Morris’ turnover from £60m to £105m and expands its presence to the Midlands.
Gaskell said there would be some job losses, but added that the firm had yet to decide how many. He said: “There has been a lot of natural wastage at Allen already. We hope there will not be too much damage. We want to build morale and pick people up.”
He said the acquisition would add more experience in flats and town houses to Morris, which specialises in three- and four-bedroom detached houses.
Gaskell said the firm, which underwent a management buyout in December 1998, planned to stay private because of the City’s lack of interest in housebuilders.
When you are only building 500-600 units a year, you are in no man’s land
Mike Gaskell, Morris Group
The sell-off follows Allen’s announcement in June that it was quitting housebuilding as it was unable to compete with larger rivals in the sector.
Analysts said the £23.8m price was reasonable and that Allen had some scope for doing business with Morris in its rental division.
Allen said it planned to use the funds from the sale to invest in its hire and utility divisions, which are more profitable than housebuilding.
Group finance director Neil O’Brien said the two divisions would aim for a mixture of organic growth and acquisitions. He added that the group was already looking at possible targets for a takeover.
The group has appointed Michael Rowan, formerly at Balfour Beatty, to grow the firm’s utility division.
O’Brien also denied City speculation that the group was intending to sell off its construction arm in a bid to move wholesale to support services.
He said the group was looking at increasing the building division’s profitability. “The division grew very quickly in the mid-1990s. The focus now has to be on margin growth, rather than turnover. We have told the division to stand its ground and improve margins.”
