Miller takes the grind out of expansion by buying big
By Ian Fraser
Sunday Herald
September 25th, 2005
DEAL OF THE WEEK
KEITH Miller has just pulled off the biggest deal of his corporate life with Miller Group swallowing up Woking-based housebuilder Fairclough Homes from its US parent Centex Corporation for £264 million, including inherited debt.
The takeover – the largest in Miller Group’s 70-year history – transforms the Edinburgh-based privately-owned company into the UK’s ninth biggest housebuilder (it previously ranked 12th), giving it a housebuilding turnover of £700m and group turnover of £1.1 billion.
“This is a fantastic, transformational deal for us, “ says Miller. “Buying a company like Fairclough allows us to accelerate our strategic plans by about two-and-a-half to three years.
“We’re immediately adding about 1500 units a year on to our annual output and 6500 units into our landbank.
“Also, geographically there is good overlap. Two thirds of their strength is in the northwest and Yorkshire and they’re also represented in the east and west Midlands, where we have offices, and the northern home counties which is a new area for us. This should bring the southern region up a little faster than we would otherwise have done.”
Expected to be immediately earnings enhancing, the deal should see Miller completing 4000 homes a year, putting it in a similar league to rivals such as Redrow and Westbury. It should also allow Miller to make even bigger deals in the future as the housebuilding sector continues to consolidate. But it will also spell an unspecified number of job losses among Fairclough’s existing 350 staff.
Miller dismisses fears that he is buying at the wrong time in the cycle.
“There is a very positive macro-economic outlook for UK housebuilding with growing household formation, high home ownership aspirations, a high level of employment, and low interest rates, “ he says.
Miller detects signs that the southern English market is picking up again, after two years of stagnation. “It could prove to be that we made this acquisition at just the right time,” he adds.
Fairclough, which builds in northwest, central and southern England, was acquired by Dallas-based Centex in 1999 after earlier owners, Amec, quit housebuilding to focus on contracting. After Centex’s ambitious plans to use Fairclough as a springboard into Europe failed to work out, Keith Miller spotted his chance. He first approached Centex’s UK advisers, Merrill Lynch, in 2003. But the action never really hotted up until June, when Merrill opted for an “open auction”.
Miller would not comment on the auction process, but property sources suggest a total of six preliminary bids were whittled down to three by early August 2005.
Despite finding itself against the big hitters of Westbury, Redrow and Persimmon on the final shortlist, Miller was delighted to have pulled the deal which was announced by Centex to the New York Stock Exchange on Monday.
It was funded through a £300m loan facility provided by Miller’s long-standing lenders, the Royal Bank of Scotland, HBOS, Lloyds TSB and Clydesdale Bank.
“They stepped up without any hesitation to fund the whole thing on very similar terms to the terms we have at the moment.
“The gearing has gone up quite significantly; it’s all asset backed, and the banks are all very happy it’s unsecured.”
Miller Group – advised by the law firms Dickson Minto and Wragge & Co – did all the exhaustive due diligence itself.
Keith Miller says: “We did a very thorough due diligence exercise, right down to every single plot, every single employee.
“Now we’ll take a bit of a breather for six months to a year. Wse’re not shutting our eyes to opportunities; if there are good opportunities we’ll look at them. But this’ll take a few months to integrate.”
Miller Group recently announced a 63% jump in its half year pre-tax profits to a total of £38.7m.
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Posted by Ian Fraser
on Sep 25 2005. Filed under Article Library.
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