Morgan Sindall increased its turnover by £1bn this week as it confirmed its deal to buy part of Amec’s construction and civil engineering business, and its whole regeneration arm, for £26m.

Morgan Sindall was the frontrunner to purchase the businesses. It is set to buy 150 of Amec’s 1,000 contracts and £800m of orders, stripping out the loss-making design and project services division. The deal catapults Morgan Sindall into the top five UK contractors with a turnover of £2.5bn.

The driver for the deal was Amec’s mixed-use regeneration business, Amec Developments, which has net assets of £60m. This acquisition puts Morgan Sindall into contention with clients such as BAA and the Ministry of Defence, and helps Amec, which would have struggled to offload the loss-making construction business separately.

A lot of Amec’s civil engineering business will be integrated into Morgan Est, the company’s infrastructure arm. Amec’s construction business will combine with Bluestone to create a new firm, Morgan Ashurst.

It is unclear if there will be job losses, although John Morgan, Morgan Sindall’s chairman, said the deal was “not about cost cutting”. Management from both Amec businesses will remain.

Morgan Sindall was able to agree a deal quickly, ahead of the best offer deadline of 25 June, because it did not need to raise extra funds from the City.

Morgan Sindall has taken a lot of risk out of the deal

Mark Howson, Abn Amro

Morgan said: “The development business is the interesting one but a lot has happened in construction. We’re buying the present and future, not the past.”

Morgan Sindall will pay £55m for goodwill. Amec will pay Morgan Sindall £29m for liabilities and will retain contracts accounting for £24m of the £27m loss the construction business made last year.

Mark Howson, an analyst at ABN Amro, said he expects the deal to enhance Morgan Sindall’s earnings by about 17-20% in 2008. He said: “Morgan Sindall is buying a clean business. It has taken a lot of risk out of the deal.”

Morgan Sindall’s shares rose 13% to 1500p on Monday and continued to rise as Building went to press.

Postscript

This week Amec sold its Canadian Midwest Pipelines business to Panamanian contractor Willbros for £11m.

The history of Amec’s troubles is at www.building.co.uk/archive