£28m Connaught unit sale is a win-win (well, mostly)

2,500 jobs saved - and investors like the deal so much that buyer Morgan Sindall saw its share price jump nearly 20%.

by James Taylor
Last Updated: 19 Aug 2013
A surprise boost for the staff threatened with redundancy after the collapse of social housing group Connaught earlier this week: administrator KPMG has already managed to sell the bulk of its assets to construction firm Morgan Sindall, in a deal that's expected to salvage around half of the unit's 5,000 jobs. It also looks a great deal for the buyer, which is paying a fire-sale price of £28m for a business that it expects to boost revenues by some £200m - no wonder its share price shot up as much as 18% this morning (it's up nearly 10% at time of writing). Although of course, it won't obviate the threat of job losses entirely...

Connaught - or at least the social housing bit thereof - collapsed into administration on Tuesday; it's been hit hard by councils scaling back their spending in anticipation of the imminent cuts, and ended up in a downward spiral as supplier and investor confidence drained away. But the administrator has been able to tie up a deal unusually quickly: Morgan Sindall is buying most of the contracts and assets of the unit (all except the lowest quality ones, presumably) and transferring them to its own affordable housing unit Lovell.

Around 2,500 Connaught employees are apparently expected to keep their jobs as a result of the deal. And although that's only about half of the staff employed by the unit, in the circumstances, half is presumably better than none.

Morgan Sindall also seems to have bagged a bargain, since it's confidently predicting that the £28m deal - which it paid for in cash, with no need for bank debt - will add £200m to its top line every year (and it could be more - the unit used to make closer to £300m). Executive chairman John Morgan described it as a 'step change' - and the reaction of investors suggests they're inclined to agree.

Still, prospects remain dubious for Connaught's remaining 7,500 or so staff: although two-thirds of them work in the enironmental and compliance divisions, which aren't in administration and are allegedly trading profitably, there has to be a good chance that they'll also be sold to free up some cash. So there could be further turbulence ahead.

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