Kier, the FTSE 250 property, residential, construction and services group, has just announced that it has entered into a conditional agreement to buy international infrastructure and business services group Mouchel for £265 million in cash.

Kier has agreed to acquire Mouchel for a total consideration of £265 million in cash to be financed by a £340 million fully underwritten rights issue. Under the rights Issue, new shares will be issued at 858p per new share on the basis of 5 new shares for every 7 existing shares.

The proceeds from the rights Issue will also be used to repay Mouchel's net debt at the time of the acquisition, finance the integration costs of the acquisition and pay the costs and expenses associated with the rights Issue and acquisition.

Mouchel reported group revenue (including share of JVs) of £616.6 million and underlying operating profit of £27.7 million for the year ended 30 September 2014. Revenues for the three months ended 31 December 2014 increased by 38% compared to the same period in the previous year.

The acquisition will create an enlarged group with a pro forma combined order book of £9.3 billion (as at 31 March 2015), comprising Kier's order book of £6.5 billion and Mouchel's order book of £2.8 billion.

Commenting on the deal, Haydn Mursell, Chief Executive of Kier, said:

"Over the last three years, Mouchel has been transformed into a strong business with market leading positions. The combination of Kier and Mouchel, particularly in the provision of UK highways maintenance services, creates a leader in a growing marketplace.  The Acquisition is consistent with and accelerates the delivery of our Vision 2020 strategy and will provide compelling value to shareholders."

The Kier Board said the combination of Kier and Mouchel brings together Mouchel's leading position in strategic highways services with Kier's presence in the local authority roads market and creates a sector leader in the growing UK highways maintenance and management market.

The acquisition positions Kier to benefit from the Government’s new Road Investment Strategy which sets out a long-term investment plan of £17 billion of total expenditure on the maintenance, renewal and enhancement of the strategic road network from 2015 to 2020, with annual expenditure increasing from £2.9 billion to £4.1 billion over the same period.

The Board believes that the strategic rationale for the acquisition is compelling and is aligned to Kier's Vision 2020, representing an excellent opportunity to accelerate Kier's strategy for growth in the infrastructure sector.

The acquisition, which is conditional upon obtaining the approval of shareholders, is expected by the Board to be materially earnings enhancing for Kier for the financial year ending 30 June 2016, the first full financial year following completion, and to deliver a ROCE of at least 15% in the financial year ending 30 June 2017.

Grant Rumbles, Chief Executive of Mouchel, said:

"Kier and Mouchel are an excellent fit. The enlarged company will enable us to improve our offer to customers and to enhance the career opportunities of our employees. This deal is testimony to the successful turnaround of Mouchel following its 2012 restructuring. Refocusing the business on its core strengths and targeting profitable growth has brought us to a position where our order book is now more than £2.8bn. For that I thank my excellent management team and all of our staff for their hard work and determination over the last few years."