Berkeley-Bovis merger sinks amid moribund M&A market

Calls for a merger between Berkeley Group and Bovis Homes are unlikely to re-ignite a muted M&A market, analysts said this week as shareholders rallied around the housebuilders. When Bovis’s second-biggest shareholder, Schroders, which owns 6.4%, proposed the merger last weekend, the share price shot up briefly by 5.6% to 841.5p in the first hour of trading on Monday. It finished the day 2.9% above close on Friday. Prices have remained broadly constant since. Bovis issued a profit warning last month after missing its building targets for 2016. Chief executive David Ritchie subsequently resigned. Anthony Codling, an analyst at Jefferies, said the consolidation would have had “all the ingredients for a good story” but “without a credible plot”. The land market, he said, was still attractive because pricing had softened in the months following the referendum vote, and housebuilder M&A activity was more likely when there was not enough land and companies turned to corporate deals to expand. He said: “I saw no reason why the share price should go up. I don’t think the market conditions are supportive of mergers and acquisitions. But the beauty of markets is that people take different views.” Larger housebuilders are also likely to remain cautious about significant growth while volatility looms over the sector. M&A activity has died down in the sector since its heyday between 2005 and 2007. Outside of a handful of notable exceptions, including Legal & General and Patron Capital’s £210m acquisition of Cala from Lloyds in 2013, corporate deals have dropped off. However, Patron has been in talks to sell its 50% stake in the company to China’s Evergrande Group. A merger with Bovis would also have been uncharacteristic for Berkeley. For more than a decade, Berkeley has rarely expanded outside London and the South East, with Bovis prominent throughout the regions. Berkeley has, however, opened a Birmingham arm to explore opportunities in the city. • To send feedback, e-mail karl.tomusk@estatesgazette.com or tweet @ktomusk or @estatesgazette