Housebuilder McInerney has expanded its British operations with the acquisition of a construction group for up to €13 million.
The deal to buy Alexander Developments Ltd will see the listed builder extend its reach from north-west England across to the northeast. It will also add a new segment to McInerney's market.
At present, it specialises in starter homes in the British market. Alexander is better known for more upmarket homes. McInerney managing director Mr Barry O'Connor said: "We are looking to bring our starter home model into the northeast and introduce the more upmarket product into our existing UK operations."
McInerney has agreed to pay £6.25 million (€9.3 million) in cash up front. It will pay up to an additional £2.5 million (€3.7 million) under an earn-out clause depending on performance in the three years to the end of June 2007.
Under the earn-out, any after tax profits in excess of £900,000 will be shared on a 50:50 basis between McInerney and the owners of Alexander Developments.
Mr O'Connor said the acquisition was a significant step in its plans to expand its UK operations. McInerney initially entered the UK market with the purchase of the small Lancashire builder William Hargreaves in 1999. In 2002, it bought Charlton Group for £10.2 million.
Analyst Mr Flor O'Donoghue of company broker Davy said the deal was essentially a bolt-on acquisition, which would add about 15 per cent to output.
"The UK has gone really well for them," he said, adding that the deal was in line with the group's expressed wish to widen operations in Britain to cover the north-east.
McInerney saw profits from its British operations rise 57 per cent in 2003 with output up 74 per cent. Mr O'Connor pointed out that the northeast was the fastest growing region in the UK in terms of housebuilding.
Goodbody analyst Mr Robert Eason welcomed the deal. "Even if the market did take a turn for the worse, a significant chunk of the purchase price is in performance related payments. In addition, the north is likely to be more protected from any downturn."
Alexander Developments currently operates largely in a 20-mile radius from its Sedgefield base. Mr O'Connor hopes to extend this to a 40-mile radius, which would bring Newcastle, Middlesbrough and Sunderland into its net.
"This is a foothold in a new geographic territory with a population of some two million people," he said.
Alexander, which reported a pre-tax profit of £502,000 in the year to the end of June 2003, operates in commuter towns around large urban centres. It has a land bank to cover development over the next two years.
