Barratt deal would not have been necessary if not for ‘dire’ housing market, says Redrow founder

The founder and former boss of Redrow says last week’s £2.5bn merger with Barratt would not have been necessary in a healthier housing market. 

Steve Morgan, who founded the business in 1974 and remains a shareholder, was involved in the early stages of the deal, which saw the UK’s biggest housebuilder acquire Redrow’s entire share capital. 

Speaking to Housing Today in the wake of the agreement, Morgan said the state of the housing market explained the increasing trend towards concentration at the top of the industry. 

“If Redrow were able to go out and buy as much land as they wanted whenever they wanted, you wouldn’t need mergers or acquisitions (M&A),” he said, adding that the same applied to any other builder  

“There would be no incentive [for M&As] if you could go out and buy land. It would allow SME builders to grow and the whole industry to thrive”. 

He said consolidation was “definitively the direction [the industry] is going”, but said this was no different to other sectors, such as car manufacturing. 

Morgan said he expected M&A activity to increase in the sector, suggesting that the planning system was putting limits on firms’ organic growth.  

“Had I still been at the helm of Redrow, I would have been fishing around looking for possible acquisitions myself,” he said.  

“The time and circumstances really make sense of M&A activity. We have got such a dire planning system […] it makes it very difficult for any housebuilder, of any size, to grow their business. You are just running through treacle all the time”. 

Morgan founded Redrow as a civil engineering business after the firm he worked for as a 21-year-old site manager went bust. 

The business won a new sewer contract on the day it announced it was closing and Morgan offered to take it on as a subcontractor. 

WIthin a decade it had grown to be a medium-sized regional contractor in the north west and Wales, switching the private housing after Margaret Thatcher took an axe to public spending. 

“We were able to do it because the land was available and you could get your permissions quick,” he said.  

“When I started Redrow you could get planning permission in six weeks, and that would be just laughable today – even six months would be laughable,” he said. 

“We could buy a site, build it very fast, turn it back round and go onto the next site because they land was there. 

“The red tape in housing compared to when I started is off-the-scale. I feel sorry for SME builders, how they cope with it I don’t know.” 

After expanding to other parts of the country in the 1980s, the business was floated in 1994. Six years later, Morgan left for the first time and the new management pivoted strategy. 

He was remained a shareholder, “for old times’ sake as much as anything else” and was asked to return to running the business after it was “caught with its pants down” in 2008. 

“We went on the attack – instead of closing sites we got back on site, started building again and we dropped the prices and started selling,” he said, describing his strategy post-recession. 

By the time he left for the final time a decade later, the company was making more profit than it had been making turnover when he re-joined. 

Morgan said he saw the deal as “a merger rather than a takeover”, explaining that the firm he founded had “just moved on to a different chapter”. 

“It’s by no means the end of Redrow,” he said. 

>>See also: Steve Morgan interview: ‘It’s like the government wants to destroy the industry’

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Morgan said that there had been no “serious” offers for Redrow during his many years in charge of the business but said that if he were still in charge, he “would have been fishing around looking for possible acquisitions myself”.  

The deal has been in the making since November and Morgan said the “relatively quick” completion was down to the pair’s imminent half-year results, which he said had “sharpened the minds”. 

Both of the housebuilders saw their profit and revenue drop on the day of the merger, though executives from the pair also noted signs of improvement in the housing market.  

Barratt’s profit was 81% down to £95m in the half year to December 2023, with turnover of £1.85bn, a third down on the same period the year prior.  

Meanwhile, Redrow’s half-year profit was cut to £84m on revenue of £756m. 

Explaining the benefits of the deal, Morgan said: “Redrow is very strong in the forward land market and has options and owns a number of very large sites in the pipeline [and] Barratt, particularly through the Gladman acquisition, a year or so ago, also have a number of very large sites.  

He said trading with multiple brands would allow the pair to get through large sites quicker with a stronger return on capital. 

“Having three very distinct brands in house is a very positive weapon to attack major sites,” he added. 

The deal now has to be approved by shareholders and regulators, but Morgan dismissed the notion of an intervention from the Competition and Markets Authority as fanciful. 

He said he was not worried about the watchdog’s ongoing inquiry into potential collusion because “you can’t find things that don’t exist” and hit out at the housing secretary Michael Gove, who pushed for it in the first place. 

“They are looking for builders who work together to squeeze out SME builders. I’ve been in this industry all my life and that is just utter bollocks,” he said. “Builders would cut each other’s throat for a decent parcel of land”. 

“It makes my blood boil,” he continued. “How dare they point the finger at builders when they have been tinkering and messing around [….] they are indecisive, they change their mind like some people have dinners”.