Arrowpoint Advisory's Alex John shares his thoughts on how some of the major groups are 'tooling up' for growth.
Despite any short-term uncertainty surrounding Brexit, the medium and longer-term outlook for the UK infrastructure market is very positive, with upcoming major investment projects scheduled across most industry verticals in the period to 2021:
- Road - £15.2bn budgeted spend by 2020 under the Road Investment Strategy, with a further £4.7bn allocated to local authorities for maintenance (although the 'pothole backlog' is estimated at closer to £12bn):
- Rail, Crossrail completion, construction on £42bn HS2 scheduled to commence in 2018;
- Airports , £17.6bn Heathrow expansion, new £130m terminal at Stansted to be built by 2022;
- Energy , aside from the major nuclear power projects at Hinkley Point, Bradwell and Anglesey, £46bn to be spent on energy transmission and distribution, and a further £31bn on nuclear decommissioning;
- Water , c.£5bn per year to be spent under current AMP6 investment cycle to 2020; and
- Telecoms , c.£6bn to be spent on improving the UK's broadband and digital networks by 2021.
Construction output in the infrastructure sector as a whole is forecast to experience growth of 30% in the period from 2016-2020 to £24bn per year Leading Edge Management Consultancy.
Some of the major groups appear to be 'tooling up' for this period of anticipated growth, leading to a wave of investment, hiring and M&A activity. Recent examples include:
- Buy-out of Morrison Utility Services by First Reserve (US PE firm) and subsequent acquisitions of Dyer & Butler (Rail, Airports) and G4S Utility (Energy meters);
- Acquisitions of Berkshire Macadam and United Asphalt by FM Conway to boost its in-house asphalt production capacity in the South East by c.400k tonnes per year; and
- Rumours of a merger between major consulting engineers CH2M Hill and WS Atkins
Clearly any immediate concerns around our impending exit from the EU are being outweighed by positive longer-term sentiments, suggesting M&A activity will remain on the agenda for the medium-term for businesses with exposures to this market.