Galliford Try PLC: Corporate Structure, Parenting and Portfolio Management - Case Study Example

Galliford Try PLC: Corporate structure, parenting and portfolio management Place Word count: 2017 Table of contents Introduction…………………………………………………………………………. 3 Assessing the level of Galliford Try diversification …………………………………3 The role of strategic development methods in Galliford Try management…………. 5 Galliford Try development in the retrospect of time................................................... 7 Executive summary………………………………………………………………….. 8 References…………………………………………………………………………… 10 Introduction According to Martin and Sayrak (2003), the twentieth century has brought the record- breaking level of mergers and acquisitions that is estimated totally in more than two point three trillion dollars in 1999. By this number the average annual growth rate of mergers exceeded twenty per cent from 1985 to 1999 (Martin & Sayrak, 2003). The reason for such high rate of mergers was caused by the corporations’ strategies to position themselves for entry in the new and emerging markets and thus to improve their performance. Good and Luchs (1993) were investigating the question of diversification during the 1960s-1980s trying to understand whether the strategies of diversification were working. Based on the findings from the numerous research works, the following report will assess the level of diversification of one particular corporation, the Galliford Try, a housebuilding and construction group that delivers an industry leading performance in constructing a sustainable future (About us, n.d.). In this report, the role of such development methods as organic growth, mergers and acquisitions and joint ventures will be examined. A comparison to the previous periods of Galliford Try’s performance and other firms will be conducted. Based on the Good and Luchs (1993) findings about diversification, the report will represent how Galliford Try reflects its activities to the historical perspective of corporate diversification. Assessing the level of GallifordTry diversification Diversification as a form of growth strategy means that certain company wants to enhance its performance objectives and obtain its corporate growth (Pandya & Rao, 1998). While there are many considerations as to the benefit and costs of diversitication, disciplines in management and marketing spea about the good results of the diversification regarding improvement of organizational performance. Finance discipline, however, makes a case against corporate diversification stating that as in any economic activity diversification has lots of costs, hence, a company’s performance depends on how its managers obtain a balance between costs and benefits in every particular case (Pandya and Rao, 1998). Moreover, management researchers claim that diversification prolongs the company’s operational life, while finance researchers argue about costs that fall unequally on managers and investors. Martin and Sayrak (2003) suggest that corporate diversification destroys shareholder wealth, however, major U.S. corporations remain highly diversified. The fact that companies are using diversification in their strategy is called by their pursuing of managerial self-interest at the expense of stakeholders and in willingness to possess the capacity in resources interchanged within the industries. In addition, corporate diversification offers market power which engages the reciprocal buying with big companies that make small business inactive competitors (Martin & Sayrak, 2003). Thus, in 2000 a Galliford and the Try Group have merged in a deal worth twenty-six millions pounds with the aim to significant save in costs and increase the earnings within the first financial year of merger (Litterick, 2000). Moreover, Litterick (2000) reported that two business had much in common, like compatible strategies and both were engaged in the sector expertise and regional strengths, the company was looking to further acquisitions. For a major UK contractor that operates mainly under the Galliford Try and Morrison Construction brands, the company works for people across the public and private sectors in Householding and Construction sectors. It also establishes long-term relationships with them providing the whole-life solutions and ensuring high standards of the work, delivering innovation (Annual Report and Financial Statements, 2014). Starting as a carpenter by trade, the founder of Galliford Try was carrying constructions business, however, taking an advantage of the enhanced construction expenditure during the II WW, the company grew and by 1965 it became the public company (Our company history, n.d.). As it is stated in the company’s financial report, Galliford Try’s performance has been showing its excellent performance through utilizing of a hybrid business model which enabled the company to cope well during the recession. In the perspective, the aim of Galliford Try is to create value for shareholders and to set out our new strategic objectives for each division. The company plans to double its profit before tax and earnings per share by 2018 (Annual Report and Financial Statements, 2014). In reaching such a target, the company will follow its strategy with the focus on disciplined growth across the whole businesses. As Gardiner (2013) reported, the company was looking to diversify into new business models since it is searching the ways that would drive its improvement in the business’s profit margins (Gardiner, 2013). While the Galliford Try business of Housebuilding Linden Homes would remain building a higher margin business, the company expects to achieve such results by defining the alternative funding and sales models which would include the opportunity to fund housing projects via joint ventures and bidding to take on excess of public sector land (Gardiner, 2013). The role of strategic development methods in Galliford Try management The question of joint ventures is not new for Galliford Try, since it has the knowledge of the land markets, is able to assemble the funding solutions. These are the company’s financial strengths that enable Galliford Try to provide the society with the schemes valuable as for investors as for stakeholders (Joint ventures, n.d.). As Apps (2015) reported, the housing association has entered a joint venture with Galliford Try in order to build one thousand and six hundred home scheme with the total worth a four hundred million pounds over twenty years. This means that each of the parties will invest the initial sixteen million pounds in the new partnership and then develop the scheme that will have the overall gross development value in four hundred million pounds (Apps, 2015). According to the Company’s business model and strategy (n.d.), the construction business has many benefits from the improving market and pursuing the complementary acquisition of Miller Construction. The Galliford Try has announced about the acquisition of the Miller Contruction business on July, 2014 (Press releases, 2014). Due to such strategic move, the company will increase the construction revenue target from one point twenty-five billion pounds to one point five billion pounds by 2018. Prior (2014) reported that the deal would increase the company’s presence on national and regional levels and at the same time would be in the synergy with the company’s strategy of disciplined and selective growth. As identified by GallifordTry Annual Report and Accounts (2014), in this industry, it has three competitors in the representation of Keller Group PLC, Balfour Beatty PLC and Kier Group PCL. The Kier Group Company with the annual revenue in two point one billion pounds is much higher than Galliford Try Group. Beside housebuilding, the Kier Group also captures surface mining and project investment (Annual report and accounts, 2013). Galliford does not work in such industrie, hence the Kier Group cannot be considered appropriate competitor to Galliford. The Balfour Beatty PLC with its integrated infrastructure services group that is present in more than eighty countries comprises the competitor to Galliford, however only in the projects located in UK. Compared with Keller group, debt to equity ratio of Galliford Try PLC is higher and this means that the company is not protected in case of insolvency, unlike Kier Group (Annual report and accounts, 2013). However, according to the Financial Times (2015), the  Galliford Try Company is more safe in its native housing market. Financial Times (2015) report about the Galliford Try half year results to raise its interim dividend by forty-seven per cent to twenty- two per share. Willoughby (2009) reported that Galliford Try figures put its competitors Barratt Developments PLC and Redrow PLC in the sade due to sales of its homes that went up seven per cent in 2008. Barratt Developments are continuing to meet their targets on completions and margins in the second half of 2008. Despite the competitive market, the homebuilder and construction outfit Galliford Try showed a considerable performance over the last half year of 2014 rising twelve per cent, which is also the good consequence of acquired Miller Construction. Hence, the company proceeding to move ahead (Galliford Try says Miller integration substantially ahead of plan, 2015). However, some analysts are called a concern about the influence of issues that are related to the Miller’s London contracts on the combined profitability of the company. Galliford Try development in the retrospect of time The question of diversification is considered to be directed toward the improvement of strategies of the certain company, however, Goold and Luchs (1993) state about the very few influential ideas that would support the successful strategy of the diversified company. Moreover, they have been investigated the question of diversified company during several decades and different years have brought numerous considerations about the need and purpose of diversification. According to Goold and Luchs (1993), the number of companies with numerous acquisitions of unrelated business was big. Their managers considered they discovered the new grounds, however, without the skills and effectiveness of management, the conglomerates could not exist. That time, Galliford acquired Stamford Construction, the based housebuilder in Peterborough. In 1989 the company acquired specialist piling contractor Rock and Alluvium and went public (Our company history, n.d.). Since the number of diversified companies has increased, Goold and Luchs (1993) have also emphasized the notion of issues concerning corporate strategy and how to build it. In their article, the concept of strategy emerged with the need of managers to pay attention on the strategies of their companies. Casadesus-Masanell and Ricart (2009) have integrated the concept of strategy along with the business model, tactics that all together comprise the generic two-stage competitive process framework. They defined the object of the strategy to be a choice of business model and it should determine the tactics that enable the company to compete with others and be present in the market (Casadesus-Masanell & Ricart, 2009). For Galliford, its strategy is established. Moreover, the company states that for the first time in several years, it achieved a significant grow in the markets of house holding, affordable homes and construction (Annual Report and Financial Statements, 2014). Such success gave the company possibility to look forward and set new strategic objectives. These new goals will be to deliver the disciplined growth in Linden Homes and Partnership and develop its construction as well. Moreover, the company has now the strategic strengths in reduction of reliance on any one market, complementary financial profiles and reduction of influence of economic cycles along with the adaptation of house building to economic changes. According to Goold and Luchs (1993), portfolio planning gives managers common framework to compare many different businesses. For that purpose the Boston Consulting Group’s growth and share matrix was developed that enabled the companies to analyze their position in the market. In addition, it gave business possibility to set objectives and resource allocation strategies for their different businesses. As Bueso (2015) reports, the homebuilder and construction organization Galliford Try recognized a significant performance of the last half a year and the unit completion rose up twelve point five per cent along with the integration of the recently acquired Miller Construction. Hence, the company proceeds sustainability ahead of plan. Executive summary Mergers and acquisitions has been recognized as the activities that enable two companies to bring more value to each other than while they act by themselves (Maditinos, Theriou & Demetriades, n.d.). However, the alluring of businesses with different purposes, objectives and management styles can be tough. Strong companies strive to create a competitive and cost-efficient company, while smaller enterprises need to increase the market share and achieve greater efficiency. Whatever the reason lies behind the acquisition and merger, there is a desire of both companies to diversify their activities. Thus, Galliford Try Group starting its business as separate enterprises, have become the strong corporation with several companies in partnership. A Householding and Construction company, Galliford diversified its activities with several joint ventures increasing the construction revenue target and improved the strategy of disciplined and selective growth of the enterprises it owns. Based on the theoretical findings, it is obvious that the company took all the best from the researches in order to create the strong and well-positioned corporation which is now the leading construction company in UK. References About us, n.d. The official web site for Galliford Try, [online] Available at: [Assessed on February, 23d, 2015]. Annual report and accounts, 2013. The official web site for Keller, PLC., [online] Available at [Assessed on February, 23d, 2015]. Annual Report and Financial Statements, 2014. The official web site for Galliford Try, [online] Available at: [Assessed on February, 23d, 2015]. Apps, P., 2015. Spectrum enters £400m joint venture to build 1,600 homes, The Insidehousing, [online] Available at: [Assessed on February, 23d, 2015]. Bueso, A., 2015. Galliford Try says Miller integration substantially ahead of plan, The Digitallook, [online] Available at: [Assessed on February, 23d, 2015]. Casadesus-Masanell, R. and Ricart, J., 2009. From Strategy to Business Models and to Tactics, Harvard Business School, [pdf] Available at: [Assessed on February, 23d, 2015]. Financial Times, 2015. [online] Available at: [Assessed on February, 23d, 2015]. Galliford Try says Miller integration substantially ahead of plan, 2015. The Sharecast, [online] Available at [Assessed on February, 23d, 2015]. Gardiner, J., 2013. Galliford Try housebuilding boss to diversify for growth, The Building Co, [online] Available at: < http://www.building.co.uk/galliford-try-housebuilding-boss-to-diversify-for-growth/5054360.article>[Assessed on February, 23d, 2015]. Goold, M. and Luchs, K., 1993. Why diversify? Four decades of management thinking. Academy of Management Executive, Vol. 7 No. 3 Joint ventures, n.d. The official web site for Galliford Try, [online] Available at: [Assessed on February, 23d, 2015]. Litterick, D., 2000. Galliford and Try in £26m merger deal, The Telegraph, [online] Available at: < http://www.telegraph.co.uk/finance/4462844/Galliford-and-Try-in-26m-merger-deal.html>[Assessed on February, 23d, 2015]. Martin, J. and Sayrak, A., 2003. Corporate diversification and shareholder value: a survey of recent literature, Journal of Corporate Finance 9, [pdf] Available at: [Assessed on February, 23d, 2015]. Maditinos, Theriou & Demetriades, n.d. The Effect of Mergers and Acquisitions on the Performance of Companies, Journal of European Research Studies, Volume XII, Issue (2), [pdf] Available at: < http://abd.teikav.edu.gr/articles/journal_ERS.pdf>[Assessed on February, 23d, 2015]. Our company history, n.d. The official web site for Galliford Try, [online] Available at: [Assessed on February, 23d, 2015]. Pandya, A. and Rao, N., 1998. Diversification and firm performance: an empirical evaluation, Journal of Financial and Strategic Decisions, Vol. 11, N. 2 Press releases, 2014. The The official web site for Galliford Try, [online] Available at: [Assessed on February, 23d, 2015]. Prior, G., 2014. Galliford Try buys Miller Construction, The Constructionenquirer, [online] Available at: < http://www.constructionenquirer.com/2014/07/10/galliford-try-buys-miller-construction/> [Assessed on February, 23d, 2015]. Willoughby, M., 2009. Galliford Try figures put Barratt and Redrow in the shade, The Building Co., [online] Available at: < http://www.building.co.uk/galliford-try-figures-put-barratt-and-redrow-in-the-shade/3144436.article > [Assessed on February, 23d, 2015]. Read More