House builder McInerney Holdings is to re-enter the British market almost a decade after the property slump resulted in it withdrawing with significant losses. The company has agreed to acquire William Hargreaves Holdings Limited (WHL), a Lancashire contracting and house building company, for up to £1.6 million sterling (€2.4 million). Although the consideration is small, it is an important move for McInerney as it represents its first move into Britain under the present management. McInerney said WHL was a good fit. When the acquisition is completed, McInerney "intends primarily to develop the house building activities and re-establish the company as a significant regional house builder".
Mr Barry O'Connor, McInerney's managing director, said it was the right time "to enter the UK construction market in a measured way". The acquisition "represents a low capital cost means to achieve this goal with turnaround potential".
WHL, which has been financially stretched, has been seeking a strategic partner to allow it to grow at a larger scale. Part of the deal involves McInerney making a non-interest bearing loan of up to £600,000 to WHL to reduce its bank debt and for general working capital requirements. In addition, McInerney has agreed to provide up to £2.15 million over a three-year period by way of an interest-bearing development loan to WHL "to enable it to fund development opportunities in the greater Manchester area. The draw down of this loan is subject to the approval of specific development projects by the McInerney board in line with the criteria developed for the allocation of group capital".
The initial consideration is £750,000 with £375,000 payable in cash on completion, and £375,000 payable in McInerney loan notes on completion which cannot be exercised until one year after completion. An additional consideration, of up to a maximum of £850,000 may be payable if certain targeted earnings are achieved in each of the four years ending June 30th, 2003. WHL incurred a loss of £1.7 million in 1998 before exceptional share premium write off. Mr 0'Connor said his management team had been working closely with WHL's resulting in adjustments, designed to strengthen its financial controls. This led to a "prudent appraisal of the value of land held and work in progress" resulting in a write down of £697,000. That and non-recurring costs of £551,944 were mainly responsible for the losses.
The losses pushed it into a net deficit position of £601,458. Net debt amounted to £5.75 million.
On a positive note, Mr O'Connor said the deal would be earnings enhancing and WHL had recently secured two significant contracts in the Bolton area. It has an order book of £15.98 million and a "strong level of enquiries for further contracting work". It is in the final stages of negotiating two land purchases to strengthen its housing development activities.
It has a 50 per cent stake in The Riverside Business Park, a joint venture established to develop a major inner-city regeneration site in Bolton. Around half the development has been completed. This joint venture, McInerney said, "is expected to be a significant source of earnings for the WHL Group going forward".
