A senior executive at Atlas Holdings reveals the reason behind the purchase and the future plans for the contractor
A greyscale photo of papermaking machinery hangs on the wall of Atlas Holdings’ UK office in the heart of Mayfair. It illustrates the private equity firm’s beginnings – its 2002 purchase of a small paper mill in Indiana, in the Midwestern United States.
“We care much more about how many pounds you can make, rather than what percentage of revenue you can make”
The firm now owns 26 companies based across the globe, turning over nearly £13bn a year. Following the announcement of a sale agreement on 2 January, Lendlease is set to become its 27th if the deal completes as planned before the summer. But what does a US private equity firm want with one of the UK’s prestige contractors? Construction News questioned a senior executive.
What experience does Atlas have in the construction industry?
We own a few construction companies – Permasteelisa is our largest [which Atlas acquired in 2020]. We used to own a structural steel company, which we sold, and we have a couple of relatively small timber framing companies out in the west side of the US. Permasteelisa is a very good lens on the industry.
How was the bidding process?
We contacted Lendlease shortly after it announced it intended to sell and said we could be interested. Lendlease then hired an investment bank, which is typical, to run the process, and we went backwards and forwards. We found Lendlease a very good counterparty to work with – fair, and transparent. That’s not always the case.
Did the business suffer in the eight months it took to agree the sale?
My sense is that the business has had very little attrition, but as every month went by people were getting more nervous. Year-end is an important time: people go home for Christmas, they think about their lives, they may come back and call the headhunter. When you are part of a large organisation, and you’re the part that the parent doesn’t really like, it affects how you feel about things. Now [the sale agreement has been announced] people feel better, and hopefully it rebuilds momentum for the company.
UK contracting is often characterised as a low-margin industry – why invest?
A main contractor is essentially a risk disintermediation and logistics company – it organises the subcontractors and then takes a skim on everybody. Yes, it’s a low-margin percentage, but given that the whole of the project costs flow through your revenue, the actual pounds you can make are quite significant. We care much more about how many pounds you can make, rather than what percentage of revenue you can make.
Do you have any plans to expand the company?
We’ll grow where we think it makes sense. If we thought we could increase market share without affecting the balance between risk and having our margins not commensurate with risk, we’d definitely look at that.
The main part of the [Lendlease] business is contracting, but it also has a consulting arm. It’s a small business today, but an obvious one to try and grow. It doesn’t need factories or lots of capital, just finding the right people and using them properly.
Is this a good deal for Lendlease’s clients?
Apart from their skills in designing and pricing and getting the right subcontractors, [clients are] paying [main contractors] so that if things go wrong they take the pain. So they want to know if things went wrong, are they good for the money?
[A client’s] main contractor is insuring risk for them. It’s like when you buy insurance for your car. You want to know your insurance company actually has something to pay you. We think this business will be at least as well capitalised as it was before and significantly better capitalised than some of its competitors.
What kind of role do you intend to have in running the business?
We’re pretty active in our businesses. We expect to be there to help and give guidance – just like a board of directors for a public company, but probably more involved.
Any strategic move that has risks attached to it, capital that needs to go with it – that would definitely be something we’d discuss with management. But we’re not expecting them to ask us what projects to take on. We’d like to be told about it, as part of standard reporting procedures. We rely on professional management to run the business, as they’re doing today.
£35m is about one-seventh of what Lendlease bought Bovis Construction for in 1999. Does that reflect the health of the business?
What Lendlease bought 25 years ago looks quite a lot different than what this company is. Our job is to try and strike a good deal for our investors, not to try and pay the highest price for Lendlease. We got the price that we got because that’s what they decided was the best thing for them.
One of the issues is that… you can’t really buy the business unless you’re prepared to capitalise it with a strong balance sheet. We’re prepared to do that – not many private equity firms are.
Is this a long-term investment for you?
Yes. I don’t think this is something you could buy and do a quick flip. For us to make money on this, we’ll have to own it for a decent period and develop it.
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Charlotte Banks