Wates to hit £1.6bn revenue after Shepherd buy

Turnover at Wates will hit as much as £1.6bn in 2016, following the completion of the acquisition of the bulk of Shepherd’s construction business last night.

The deal, which completed overnight and will boost Wates’ turnover by around £300m annually, will see Wates acquire the £208m-turnover M&E business Shepherd Engineering Services, its subsidiary Shepherd FM, and a large tranche of contracts and staff from Shepherd’s general building business Shepherd Construction.

Wates chief executive Andrew Davies (pictured) told Building the buy-out, in addition to the acquisition of Purchase Group last autumn and continuing organic growth, meant Wates, which reported revenue of £1.05bn last year, would hit turnover of £1.5-1.6bn next year.

The company has previously laid out an ambition to double its turnover to £2bn.

Davies also said the deal was ‘never in question’ despite taking nine months to conclude, according to. He described rumours the two family-owned construction firms had been struggling to conclude the deal over the summer as just “chatter”, and said the negotiation over the sale had been a very professional process from start to finish. “At no point was this deal in question,” he said.

Wates will take on Shepherd Construction contracts with an annual turnover of up to £100m, along with a large number of staff at the construction business, but the Shepherd Construction legal entity and name will stay with the Shepherd Group.

Davies said the construction business would provide a huge boost to Wates’ northern contracting business run by Phil Harrison, with the firms able to offer an integrated service immediately.

Shepherd Construction laid off 55 people earlier this year after Group turnover fell sharply in 2014, and Davies admitted the negotiations over the sale had included discussions about whether Wates or Shepherd Group would retain the liability for under-performing contracts. “We pretty quickly decided the legal entity would stay with Shepherd,” he said. “In some cases it was going to be better value if Shepherd kept liabilities in-house that they understood and would be able to manage better. Clearly there were some issues in that business.

“We did a simple allocation on the basis of who is best able to handle the risk. Some contracts were running to an end and some had years to go. We’ll be taking some contracts that we have to work through, and clearly all that is reflected in the valuation of them. We had a detailed dialogue and debate. but nothing turned up that we didn’t expect.

“If Shepherd had been in a different position then it might not have been selling this business. In that sense nothing surprised us.”

Davies refused to comment on the agreed price for the “family-to-family” deal, except to say it was financed from Wates’ “internal resources.”

In total 1,200 staff will move over to Wates under the deal, taking the £1.05bn turnover firm’s staff numbers to around 3,800.

M&E business SES will remain a separate company held within the construction division, run by its existing MD, Mark Perkins. It will add a detailed design and engineering capability to Wates’ existing M&E management offering, called Wates’ Building Services. Davies said the company would compete internally for work, and would also continue to work independently for external clients. “We see it as a separate business operating within the group. We need to keep it lean, mean and fit for purpose.”