14/02/1998

Merger boost for Chesterton

Chesterton has staked its future on becoming a broad-based service provider by agreeing to a reverse takeover by private support services company Summit. The deal values the combined group at £70m.

The two companies hope a merger will marry Summit’s financial strength with Chesterton’s client base. Summit made profits of £4m in 1997, has shareholders funds of £42.6m and a £26.5m cashpile; Chesterton posted losses of £7m last year and its shares were suspended last Wednesday at 36p, 64p below its 1994 100p offer price, valuing the company now at £30m.

Chesterton’s chief executive, Michael Holmes, immediately pledged to keep Chesterton’s agency business, even though he revealed that the merged group is likely to seek a listing as a support services company rather than a property company. “We aren’t going to lose any parts of the business. Agency brings intelligence and gives us our position in the market,” he said.

But he added that traditionally surveyors “are now commodities. And there is an oversupply in the UK. We are all trying to diversify. To grow and progress, we need to look at new ideas.”

The two companies are very different. Chesterton has 2,000 staff who brought in fee of £74.5m last year. Summit advises clients on raising capital to outsource services including information technology, equipment, systems and property, and also runs those services with less than 100 staff. It sets up joint ventures to manage contracts.

However, Summit’s managing director, Kit Hunter Gordon, who will be executive deputy chairman in the merged group, indicated that Summit’s joint venture route hadn’t been working. “Our joint venture partners’ priorities aren’t always the same as ours. We want to be one provider.”

Homes, who will remain as chief executive in the new company, said Chesterton could have opted to trade its way of difficulties alone. “But this merger enables us to speed up that process and brings in people with financial skills.”

The enlarged group will concentrate on facilities management; consulting; co-investment with clients - especially in the public sector; residential agency and management; devising specialist insurance products; and property agency. Hunter Gordon said he had first approached Chesterton two years ago but that there were “internal issues that needed to be resolved and Chesterton wasn’t in a position to do anything”. The merger is expected to take three months to complete. Chesterton shareholders will hold 40% and Summit’s 60% of the merged group, with Summit’s shareholders receiving Chesterton shares and £20m in cash or loan notes. Discussions to sell Cyril Sweett back to its management are continuing.