Supersize me

1 May 2012 Vulnerable UK consultants are being snapped up by foreign giants. But with little pipeline in the UK market, what exactly are they up to, asks PPP Bulletin Editor Colin Leopold
When EC Harris said it wanted to double its turnover in 2009, at the start of one of the worst recessions in living memory, it was a clear signal that the quiet rose bed of British PFI consultants was about to be shaken up.

Except of course the statement was less a call to arms for senior management and more an open invitation for acquisition. Three years later, in just over 12 months, EC Harris has been bought by Dutch group Arcadis, Davis Langdon by engineering giant Aecom, and Halcrow by CH2M Hill. There’s also been Appleyards and LeighFisher completing deals with foreign companies.

And according to sources in the market the shopping spree is not over yet. UK consultants are vulnerable, that is not in question. Earnings forecasts are low and the cost of sterling means many of them represent good value for money for larger international firms anxious about their own domestic markets.

So who are these firms and what impact will their role in the UK market have over the long-term?

“[These are firms] looking for market share and market penetration at a good value,” says Steven Bryan at lawyers Hogan Lovells. “There are some large companies that are sitting on a lot of cash at the moment and are trying to find a home for it.”

But there is also a strategic angle to the recent courting of UK consultants. The focus of global markets has shifted to large government programmes in the energy, water and transport sectors, away from schools and housing, and that has put pressure on engineers to offer a more comprehensive service and at a lower cost.

“I’m not so sure these guys are really or necessarily interested in our small consultancy parts,” says a source at a recently acquired UK consultant. “They are more interested in our quantity surveying and our project management. It means they can go and run the world’s biggest jobs entirely in-house. So what they’re creating is a one-stop shop – a ‘we do it all’ service.”

The likes of Davis Langdon or EC Harris built their reputation on smaller social infrastructure schemes such as Building Schools for the Future or social housing regeneration. Surely they can’t just switch their teams into transport or energy overnight?

“Engineering consultants want to buy cost management skills,” says Graham Robinson, at law firm Pinsent Masons. “If you look at Arup today, a growing proportion of their staff are not engineers. What do clients want? They need all the services. Engineers are not always best placed to do that. Getting projects right at the very front end is critical.”

Artelia’s recent purchase of Appleyards, although also driven by the need for a London head office and the struggle to grow organically over the past 10 years, is a perfect example.

Many at the firm now hope the move will push Appleyards into rail and transport projects that never would have been possible before. Robert Marr at Appleyards confirms this but hints that these opportunities are just as likely to be overseas as on UK soil.

Chris Wilson at LeighFisher, which recently acquired Dutch transport practice Booz & Co, says: “Essentially clients want a broad range of services and a global capability – whether they are operating in Europe, Brazil, Australia or Canada. And industry in-depth experience – people who really understand for example the high speed rail sector or renewable energy sector. “There isn’t currently a sufficient pipeline of projects in the UK.”

As well as representing value for money, UK consultants are clearly being picked off for their exportable skills. And the role of US firms in this process has not gone unnoticed.

As well as URS, Aecom and CH2M Hill, LeighFisher parent Jacobs is also rumoured to be on the hunt for a UK firm. “Many of these firms already have a good footprint but what’s interesting is to look where the gaps are,” says Robinson. “Australia and Canada, for example. English firms would have an ‘in’ there.”

American Dreams
The UK’s ‘special relationship’ with the US gets more than enough airtime during political discussions, but it is interesting to note how the growth of PPP in the States has brought firms in the two markets closer together than ever before.

“There has historically been a quite a lot of interlink between US and UK infrastructure, including the various consultants – exporting PFI as PPP for example,” says Jan Crosby, at consultancy PwC’s construction M&A practice. “A lot of their advisory community has been UK-based, playing in the US.”

So perhaps it’s not surprising, as their own PPP market slowly opens up, that many of these US firms are realising these skills are worth more to them in-house.

“You are looking for a skill-set that people can build on. You don’t just want to buy something that does what you do. So it’s either niche stuff or more bigger ticket stuff that can transform your business,” says Crosby.

Once these recent acquisitions bed down – which may take some time – there are two schools of thought as to how it will impact the UK industry in the long-term.

In comparison to other international markets, the UK is still quite fragmented. “Are we going to have a problem where there is only one or two consultants to go to?” asks Crosby. “No, I don’t think so. My sense is that it will be a good thing as we will get even more world-leading players in our market with the broader skill-set.”

The consensus is also that it won’t have too much impact on bid pricing as there is little room to manoeuvre as it is, although the advantage of an all in-house service for programmes in the road or energy grid sectors would surely appeal to central government.

“It’s about offering that programme management approach,” says Robinson. “Mace is doing that very well at the moment, so is CH2M Hill, and I think that’s driving a lot of this consolidation – really driving savings across a programme of investment on assets rather than a project. And I do think that means bigger means better in terms of
company size.”

But what happens to the smaller consultants that get left behind? Wilson argues that there is room in the market for both large consultancies and smaller niche players.

“There are advantages and disadvantages to growing through acquisition. It is often better and more cost effective to grow organically. We need the flexibility to go to Brazil or Canada where the opportunities are.”

Although it’s an example of a UK firm acquiring a smaller foreign consultant, LeighFisher’s recent acquisition of transport player Booz is very much a strategic play – and may be a sign of the bolt-ons to come.

“We feel that what our clients want is significant in-depth specialist industry expertise in their area – and that doesn’t mean you need to be huge.”

“You’ll probably end up with the smaller guys becoming more niche,” says the UK source, “and practices specialising in airports or something and they will probably do quite well out of that.”

Greater specialisation would certainly provide some sense of comfort for smaller consultants but there still needs to be a pipeline of projects – if not in the UK then overseas – to keep them busy.

This page was last updated on:
13 July 2012.

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