Balfour Beatty buys Birse for £32m

Balfour Beatty, the UK's largest construction company, has bulked up its UK civil engineering activities by purchasing its rival Birse in a £32m deal.

The acquisition was viewed as a strategic move as companies jostle for position ahead of major civil engineering projects such as the regeneration of the Stratford area of East London ahead of the Olympic Games.

The travails of Thames Water, which has been publicly criticised for leakage as a result of the Victorian-era pipes still being used in London, also highlights the potential demand for civil engineering expertise in the region.

"The importance of civil engineering is creeping back into public view. This is a small but very strategic acquisition for Balfour," Les Kent, an analyst with JM Finn, said.

Balfour Beatty's recommended cash offer for the London-based Birse adds skills in coastal, rail and water engineering. Balfour Beatty will pay 16.625p for each Birse share, a 23 per cent premium to its closing price on Friday.

Balfour Beatty expects the Birse deal to enhance earnings in 2007. For Birse, the deal will bolster its finances after a tough few years. Birse had conducted a strategic review of its operations as a result of high debt levels and its loss-making construction operation. However, its civil engineering activities have been continued to grow despite the company's wider financial problems.

Ian Tyler, Balfour Beatty's chief executive, said: "We are confident that be bringing the two businesses together, we can accelerate growth and significantly improve performance." He added that Balfour Beatty's strategy is to expand and strengthen its regional presence in the UK civil engineering sector.

Birse reported revenue of £340.5m in the year to April. Profits before tax, and exceptional items, reached £2.8m.