Springfield's 10-year wait comes to an end with Tulloch takeover

The £56.4 million all-cash acquisition of Highlands housebuilder Tulloch by Elgin-based Springfield provides an exit for the consortium of Tulloch’s private investors who include minority shareholders Sandy Grant, the company’s managing director, and chief executive George Fraser. Mr Fraser is now set to retire, but Mr Grant and the rest of the management team will remain with the enlarged business.

The acquisition includes an initial cash consideration of £43.4m, plus a deferred cash payment of £13m. To help finance the deal, AIM-listed Springfield has proposed a placing of 15.7 million shares priced at 140p each to raise gross proceeds of £22m.

Commenting on how the deal finally “got over the line”, Springfield chief executive Innes Smith said his chairman Sandy Adam – grandson of the founder of Springfield – is “a very determined and persistent guy”.

“We phoned the bank about 10 years ago when [Lloyds] owned Tulloch, but they didn’t want to deal with us because they had much bigger fish to fry at that point,” Mr Smith said. “Five years later myself and Sandy took George Fraser and Sandy Grant out for lunch and we asked if we could speak to their investors and if they would be interested in selling, but we didn’t really get anywhere.

Sandy Grant (Tulloch Homes managing director), Innes Smith (Springfield chief executive), Sandy Adam (Springfield chairman) George Fraser (Tulloch Homes)

“Two or three years later, we met again and it looked like something could be done, but then Covid hit in March 2020 and it’s only now that we had the confidence to re-start the deal and finally we’ve been able to meet the needs of Springfield [and] the owners and investors of Tulloch.”

Headcount at Springfield will rise to 800 with the addition of Tulloch’s 140 employees. With some 60 building sites and offices in Inverness, Glasgow, Elgin and Larbert, Mr Smith said Springfield is set to become the third-largest homebuilder in Scotland.

Springfield posted record revenues of £200m for the year to May 31, with profits surging by more than 81 per cent to £18.5m amid increased demand for larger properties as many people continue to work from home.

Tulloch’s last set of results for the year to June 2020 – which did not cover the period of the market’s rebound from lockdown restrictions – showed profits falling to £3.3m from £8.8m previously. Turnover dropped from £51.1m to £32.2m, but Mr Grant said trading has improved markedly since then.

READ MORE: Springfield Properties hails market resilience as sales top £200m for first time

“We are on kind of our second re-forecast, increasing the numbers from the original budget,” he said. “We expect to deliver our numbers this year reasonably comfortably assuming there is no further fall-out [from the pandemic].”

Mr Smith said the deal will enhance Springfield’s foothold in an area of high demand. It is also expected to “significantly” enhance earnings from the first full year of ownership.

“The very strong thing with Tulloch is that 90% of the land bank has planning and 90% of the land bank is already paid for, so that means that the business is very cash generative,” he said.

“[Housing] supply as I said is not keeping up with demand. Part of the reason is there are just not enough houses coming through planning, so for us to have 90% of the land bank with planning puts us in a strong position to deliver houses.”

Springfield expanded into central Scotland in 2011 with the £49m acquisition of Redrow’s Scottish operations. It floated on the Alternative Investment Market in 2017 and in the following year spent £20.1m on the acquisition of Dawn Homes, furthering its presence in the west of Scotland.

READ MORE: Highlands housebuilder looks to bounce back after pandemic blow

It then took over Livingston-based Walker Group in February 2019 in a £31m deal that strengthened its presence in the east of Scotland.

Founded as a joinery business in Nairn in 1925, Tulloch became part-owned by HBOS when former chairman David Sutherland sold a 40% stake to the bank in the wake of the 2008 financial crisis. HBOS was subsequently taken over by Lloyds Banking Group.

Goldman Sachs and private equity group TPG then acquired that 40% stake in 2013. Backed by a £30m loan from the Bank of Scotland, Tulloch’s management team regained control of that stake in March 2015.

Mr Grant said this most recent deal with Springfield was “a natural” move for Tulloch’s investors.

“Private equity has a time horizon that would normally be about five years,” he said. “I think the Covid pandemic probably intervened there and extended that. So it’s seven years since they invested in the business and it’s that kind of natural timescale [in which] you would expect them to move on.”