Karen Lennox asks, what are the advantages tosurveying firms of a Stock Exchange quote?
Lambert Smith Hampton is the latest surveying practice to join the quoted sector, following its agreed takeover of Herring Baker Harris last week. (See “Finance”, March 9.) But what is the attraction of a stock market quote for service-based professional and advisory firms? Accountants and lawyers don’t do it. Why do surveyors?
“It should make acquisitions of other businesses much easier,” sums up Bruce Brown, LSH’s chairman and chief executive.
His firm has bought seven companies in the past 10 years – most recently Connell Wilson for £5.4m last autumn. The game plan has been to purchase regional firms – many of them small- to medium-sized local partnerships which have a strong position in a niche market.
“As a firm we have grown by acquisition. To have listed paper makes acquisitions easier,” says Brown.
Paying in cash is hardly an option, and trying to persuade target partners who have built up a successful business to sell up and take a stake in another unlisted company or partnership is often difficult.
Brown is still aiming to fill a few gaps in LSH’s regional coverage. Another two or three acquisitions would complete the network, he reckons. “We are not that big in Leeds. We are also looking to strengthen our position in niche businesses.” The HBH purchase beefed up LSH’s national ratings clientele and added public-sector consultancy and a motor trade business. LSH has been building up a health and safety audit operation in the past couple of years: Brown believes that the future of a successful property advisory business lies in providing this type of add-ons.
DTZ chairman Richard Lay is a great supporter of the corporate set-up. “A quote allows companies to raise capital in a way that partnerships are not able to do,” he explains. “A partnership depends on the wealth of the individual partners and on the banks to provide much of the working capital.
“It would have been incredibly difficult to achieve what we have if we had not been a corporate structure,” says Lay, referring to the merger with Bernard Thorpe.
What’s more, the partnership structure is outmoded, he adds. A corporate form is the most efficient for management which is concentrated in the hands of a few professional managers rather than a large number of partners.
“A partnership may say it’s making a profit, but it needs only one partner to take home £1 a year for it to say so,” says Lay.
“A corporate pays all its staff a market salary and then the profit is calculated after all the costs.”
But being public does have its disadvantages. “It can highlight weaknesses, but that in itself forces corporates to be more efficient in decision-making,” Lay notes.
Quoted agents have certainly been active. Conrad Ritblat reversed into Sinclair Goldsmith in 1993 and has changed its profile since, moving into property investment. And it is unlikely that CR would have been able to undertake the recent rescue of Erdman Lewis had it not had a corporate structure, and a quoted one at that.
Since flotation in mid-1994, Chesterton has embarked on a major spending spree, refocusing its business mainly on facilities management. The firm used its quoted shares to tie up the £7.5m purchase of British Gas Properties Facilities Management. British Gas ended up with a 16% stake in Chesterton and gets a seat on the board. A major utility would hardly have wanted such an involvement with a partnership.
Savills, although it is branching out into all sorts of business, has been noticeably absent from the acquisition trail. Purchases of surveying practices have been limited to the four offices of Nottingham-based Walker Walton Hanson.
“We’re not going to do it just for the sake of saying we’ve doubled our size,” Aubrey Adams told EG last April. “It all comes back to price, to the culture, to the fit; it comes back to whether it’s going to add value to the business as a whole.” n
