Construction and services group Kier (KIE) is to buy infrastructure and services group Mouchel for £265m in cash. But the full cost is likely to be nearer £386m, according to analysts at broker Liberum, as the deal will also include around £40m of debt, £20m of transaction costs, £17m of integration costs and a £44m pension liability.
In order to achieve its stated target of keeping net debt at the same level as cash profits, Kier is raising £340m through a five-for-seven rights issue at a deeply discounted 858p a share, subject to shareholder approval. This is expected to take around five weeks, which means the deal could be completed some time in June.
Shares in Mouchel were delisted in 2012, after which the company underwent a root-and-branch restructuring. It has performed strongly since then, boosting turnover in the year to last September to £617m and underlying operating profit to £27.7m.
Following the rights issue, Liberum has adjusted its 2016 EPS estimate for Kier from 131.1p to 120.6p and from 145.3p to 139.4p for 2017. Assuming there is steady revenue growth and stable margins, Kier is looking to achieve 15 per cent return on capital employed by June 2017.
