By Paul Sandle
LONDON (Reuters) - Kier Group (L:KIE) has agreed to buy Mouchel in a 265 million pound deal that will add motorway maintenance to its local roads business and help it to secure more of the 17 billion pounds Britain is spending on its highways.
The construction group said it would fund the purchase through a 5-for-7 share rights issue, priced at 858 pence a share, to raise 340 million pounds.
Chief Executive Haydn Mursell said he had already identified infrastructure as a growth opportunity.
"We are seeing a huge increase in spend on roads," he said, adding that Britain had committed to a 17 billion pounds highways budget over the next five years.
"Buying Mouchel combines Kier's current highways and maintenance skills with local authorities with Mouchel's leading position with Highways England looking after the motorways and key A roads," he said on Tuesday.
Mouchel has played an important role in Britain's construction industry after it brought reinforced concrete to the country in 1897.
But the 127-year old company fell victim to sharp cuts in government spending in 2011. It went into administration in 2012 and was sold to its lenders Royal Bank of Scotland (L:RBS), Lloyds (L:LLOY) and Barclays (L:BARC) and its management.
Chief Executive Grant Rumbles has turned the business around in the last three years. It reported underlying operating profit of 27.7 million pounds on turnover of 617 million pounds in the year to end-September 2014.
"We were looking at a range of opportunities, one of which was to go back on the stock exchange," he said in an interview.
"(But) we started discussions with Kier and we decided the two businesses combined would provide a great growth story."
Rumbles said he would leave the business, which has an order book of just under 3 billion pounds, when the deal closes.
He stands to make about 13.25 million pounds from his about 5 percent holding in the group, with other managers set to share a similar sum.
Shares in Kier, which will increase its equity by about a third via the rights issue, were trading up 1.2 percent at 1,644 pence at 0848 GMT.
Analysts said it was a "sensible deal."
"We believe that Mouchel is a strategically attractive asset given the strength in the highways market at the moment," said Joe Brent at Liberum, who has a "buy" recommendation on Kier.