May Gurney Integrated Services Plc, which helps grit London’s roads, said it will avoid making debt-laden takeovers as shareholders are wary of the U.K.’s faltering economic recovery.
“A lot of investors are very nervous of mega deals at the moment because of the debt that may imply,” Chief Executive Officer Philip Fellowes-Prynne said in an interview today. “It’s sensible not to get heavily indebted.”
Only those acquisition targets that can be readily absorbed into the company for cash will be considered, Fellowes-Prynne said. May Gurney is budgeting for cuts of more than 10 percent in highway spending in its next fiscal year, he added.
Fellowes-Prynne’s strategy contrasts with Costain Group Plc’s attempted takeover of larger services company Mouchel Group Plc, which has 180 million pounds ($287 million) in debt due next year. May Gurney last week announced the purchase of U.K. maintenance company Turriff Group Ltd. for an initial 8.6 million pounds in cash, plus the assumption of 9.4 million pounds in debt.
Shares of the company have added 30 percent in six months, valuing it at 183 million pounds.
Consolidation in services comes as the U.K. government seeks to tackle a record deficit by trimming spending, a move that threatens to curtail the number of contracts and tighten margins. Local authorities are now demanding more upfront working capital before awarding orders, according to analysts.
The U.K. economy unexpectedly shrank in the fourth quarter as construction slumped. Gross domestic product fell 0.5 percent, compared to predictions of a 0.5 percent gain.
Costain sees the takeover of Mouchel as an opportunity to expand from construction into the road-maintenance business, primarily to target contracts from local government clients.
May Gurney’s debt-free position helped protect it from the economic headwinds that hurt Mouchel. The company, which forecast full-year profit at the top end of the range analysts’ estimates, is not looking to be acquired, Fellowes-Prynne said.
“We’ve been around since 1926 so it’s not something that I’m unduly worried about,” the May Gurney CEO said. “We’re a strong company.”