What is it they say about the best-laid plans? Less than three years ago, when a Dublin private equity house swooped in to take control of Keating Construction, the plan was to propel the marine engineering specialist to the next level.
With revenues of €69 million and earnings of €7.7 million in 2018, the company already ranked as one of the top 50 construction companies in the country. However, by diversifying into higher-margin UK and European markets, CBD Capital wanted to drive revenues to €150 million by 2025, with the target to increase earnings to €12 million.
Now, however, the company has collapsed. On Friday, the High Court was told that examiners could not resuscitate the insolvent business. Despite scouring the market for potential investors for the last four months since petitioning for court protection in October, court-appointed accountants from KPMG could not devise a rescue package to keep the company alive.
Instead, Kieran Wallace and Andrew O’Leary from KPMG will liquidate the business. The move is bad news for CBD Capital, led Jim Murphy and Liam Dowd, and also for the company’s creditors. The liquidation exposes creditors to potential debts of €30 million, and puts 150 jobs on the line if the company is not acquired out of liquidation.
Based on court documents, here is a list of creditors worst hit:
The company had sought court protection from after receiving winding up actions from a number of its suppliers. The court was presented with a Independent Expert Report from accountancy firm Smith & Williamson saying it could be saved if new investment was sourced.
At the time, there was general optimism. However, with the economy back in lockdown and growing trade tensions between Europe and the UK, potential investors have become increasingly skittish. With time running out, the examiners had little option but to inform the court that the business needed to be liquidated.
A related company, Kilmihil Rental Store, a specialist plant and equipment company, will also be liquidated. Like its sister company, it too was under the protection of the court, and its future was tied to that of its main trading partner.
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Keating’s fall from grace was swift. Founded in 1987 by Louis Keating, the company began as a housebuilder in Munster. However, in recent years, it has moved into marine services, working on ports, piers and various waterfront projects.
Under the 2018 deal, CBD bought a 77.5 per cent stake, with Keating receiving an initial bullet payment followed by a series of deferred earn-out payments over the next three years, plus a payment from surplus cash.
Keating remained with the company, but a new CEO, Gordon O’Regan, was recruited to grow the business, which was rebranded from L&M Keating to Keating Construction. In early 2019, the company even funded the buyout of the remaining 22.5 per cent owned by Keating.
The expert report supporting the initial examinership application said the company had been hit by Covid-19, losses from legacy contracts, and the cash burn of the various payments to Keating.
The issues around loss-making contracts were significant. These include the Dinish Wharf Expansion Programme in Cork, which generated a loss of €4.6 million due to unreasonably inclement weather, the redesign of certain work and changes in geophysical conditions. A further loss of €3 million was booked from a project at Greenore, with the company suffering from restricted site access and the collapse of an old Victorian wall. A loss of €500,000 came from a dredging contract at Dublin Port.
The structure of the private equity buyout also had an impact. “CBD acquired the Companies over the course of 2018 and 2019. The net result of the sales transaction was that the Companies’ cash reserves and working capital were reduced by virtue of the terms of the sale which resulted, in addition to other amounts, in approx. €5.5 million of cash being extracted from the Company,” according to the report.
The entire shareholding of both Keating Construction and Kilmihil Rental Store is held by CBD through a series of interrelated companies.
As the losses mounted, the company faced significant issues with creditors. In addition to O’Sullivan Fabrications and Mercury Engineering, both Large Diameter Drilling and Senator Windows also lodged winding up petitions against the company.
In order to attempt to keep the companies trading, management took a number of actions ahead of seeking court protection, including a €1.5 million cash injection from shareholders, and headcount reductions through temporary layoff and redundancy. There was also salary reductions for all remaining staff.
High Hopes
The company had hoped that a number of both short- and-long term trends could help its position and attract suitors. For example, Dublin Port Company is currently working on a 10-year Masterplan whereby they intend spending in excess of €1 billion developing the aged facility in the Dublin Docklands. Keating, through a joint venture with Roadbridge, felt it was well-positioned to get a piece of that action.
The company was also confident that climate change will drive increased activity in four key areas:
- Defences against rising sea levels;
- Protection against coastal erosion;
- Flood relief protection;
- Water-related energy.
It also believed it can do well from Brexit, highlighting the UK government has announced the targeted fast-tracking of the construction and upgrade of 10 free ports.
In its report, Smith & Williamson said the company had been approached by a number of trade players about potentially investing.
It said: “There have been soundings from other non-trade investors or intermediaries. Such parties have expressed interest in exploring an investment in the business, as they are attracted by its specialism in marine and its multi-faceted international growth potential around climate change and renewable energy. This ‘green agenda’ is of particular interest to long-term investors, such as very high net worth individuals. Again, as with potential trade investors, such parties will only engage in a meaningful way once stability has been re-established to the business and a credible strategic plan is in place.”
In the end, however, the investors did not bite. It now falls to Wallace and O’Leary to sift through the debris.