Kier’s offer of 315p per share comes just weeks after a rival bid by Costain Group of 283p per share, an increase of around 35 per cent.
May Gurney’s shares rose 17 per cent to 299.5p on the news.
The potential deal is seen as a sound strategic move, as it would move Kier’s portfolio away from a heavy weighting in the construction sector to a greater proportion in services.
“This is a transformational deal for us,” Paul Sheffield, chief executive at Kier, told City A.M. “We have been wanting to double the size of our services business and this acquisition would do that.”
Kier currently generates £445m from services, equating to 21 per cent of its revenues, while construction accounts for 67 per cent.
Brokers Liberum Capital and Whitman Howard called Kier’s 315p offer a probable “knock-out bid” and said it seemed unlikely that Costain would make a further offer.
Sheffield said that the construction group had done a “thorough exercise” in terms of pricing and is targeting a 15 per cent return on capital.
The £221m deal will be paid for partly in shares and £45m in cash. Including all costs, Sheffield said he expects Kier to require £100m to finance the deal and has already raised an ample £140m from a consortium of banks comprising RBS, Lloyds, HSBC, Santander and Barclays, who have all been “very supportive.”
Kier’s takeover offer for May Gurney involved a number of advisers on both sides. JP Morgan Cazenove and Numis Securities acted as financial advisers, sponsors and brokers to Kier. The JP Morgan team was headed up by Andrew Truscott, Christopher Dickinson and Virginia Khoo.
On the Numis side, Heraclis Economides and Christopher Wilkinson lead the team. Numis has worked with Kier since 2010. The broker also recently worked with construction companies Interserve and Crest Nicholson.
RLM Finsbury is acting as PR adviser to Kier, headed up by Faeth Birch and Charlotte Whitley.
May Gurney has appointed Canaccord Genuity as financial adviser, led by Chris Robinson and Peter Stewart. Robinson has worked at Canaccord for 20 years, with a particular focus on construction and facility services. Stewart has been at the company for five years and was previously a corporate finance solicitor at Allen & Overy.
Peel Hunt is acting as broker and adviser to the target company, led by Justin Jones and Mike Bell.
Citigate Dewe Rogerson has been appointed PR adviser to May Gurney, headed up by Grant Ringshaw and Angharad Couch.