Government contractor Kier has sold off its housebuilding arm to private equity baron Guy Hands in a cash deal worth £110million.
The construction company announced the deal on Friday, saying it had agreed to sell its Keir Living business to a newly formed company called Foster BidCo owned by the billionaire investor.
Hands, the founder and boss of private equity firm Terra Firma who’s been living in Guernsey for tax reasons since 2009, said he was ‘delighted’ to buy the business, which has ‘significant growth potential’.
Deal: Private equity baron Guy Hands said Kier Living had ‘significant growth potential’
Private equity firms are infamous for making drastic cuts at the companies they buy and loading them with debt before selling them on for more money.
Kier, which has been battling through a turnaround as it struggled to get its debt down, said the sale marked a milestone in its strategy to simplify the business and strengthen its balance sheet.
The contractor is known for building schools and roads for the Government. It also recently won an eight-year maintenance contract with Transport for London.
Kier Living is its housebuilding division with operations ‘across four of the most affordable regions in England’ which undertakes the building of ‘well-priced, low-rise, mixed-tenure suburban family homes’.
The sale will include its land bank of 4,677 plots, which Kier says represent around three years of land supply based on the business delivering around 1,600 homes per year.
Kier Living generally acquires land where to build homes through joint ventures. In 2018, it partnered with Homes England and Cross Keys to develop 5,400 homes over the next 10 years.
The group said Kier Living’s stake in such ventures – which also include one with Cross Keys announced in 2017 in the east of England and one with Together Housing announced in 2016 – will be sold to Hands.
‘The Kier Living Group’s interest in these joint ventures (and the share of third-party debt) will indirectly transfer to the Buyer on Completion,’ the group said in a statement.
Kier also agreed to provide ‘transitional services for a limited time’ after the deal is completed, which include ‘shared finance services, shared HR services, procurement services and IT services’.
The deal is expected to complete in mid June.
‘Affordable’ homes: The sale will include Kier Living’s land bank of 4,677 plots, which it says represent around three years of land supply
Hands is boss of Terra Firma, the firm he set up in 2002, which has inked billions of pounds in deals, including buying and selling Odeon and William Hill.
His disastrous takeover of music label EMI and subsequent legal dogfight with Citigroup blew a £1.75billion hole in his fund and almost pulled him under.
He also bought the Four Seasons chain for £825million in 2012 before losing control to its largest creditor in 2017. Critics have argued private equity firms are too short-termist to invest in care homes.
‘We are delighted to be acquiring the Kier Living business, which operates in the sweet-spot of the housing market, delivering affordably priced homes in areas with strong demand,’ he said in a statement on Friday.
‘Post-Covid, more and more people are thinking again about where they want to live, with a focus on having their own space, including more bedrooms and outdoor living areas.
‘We believe the business, under a new, refreshed brand, has significant growth potential, and can play a critical role in delivering much-needed housing in communities across the UK.’
Kier Living’s market position is supported by a structural undersupply of affordable housing across the UK, a well-priced product in affordable regions and strong relationships with housing-focused public-sector bodies.
Kier Living uses joint ventures to provide alternative sources of capital to invest in land acquisitions and provide greater access to increased land opportunities that may not be possible without the joint venture partner.
Kier Living has announced a number of joint ventures in recent years, including a joint venture partnership established in 2018 with Homes England and Cross Keys to develop 5,400 homes over the next 10 years; a joint venture with Cross Keys announced in 2017 in the east of England; and a joint venture with Together Housing announced in 2016.
The Kier Living Group’s interest in these joint ventures (and the share of third-party debt) will indirectly transfer to the Buyer on Completion. The remaining joint ventures are not material to the business of the Kier Living Group.
As at 30 June 2020, Kier Living was classified as an asset held for sale with a fair value of £110.0 million, and an asset value of £190.9 million, and in the year ended 30 June 2020 had an operating loss of £42.4m.
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