Henry Boot has agreed to sell its construction arm, Henry Boot Construction (HBC), to PWS Construction Limited, a new company set up by the existing HBC management team.
The deal, which is worth an initial £4m, will be funded by PWS through a vendor loan note from Henry Boot.
There is also scope for future payments if performance targets are met.
The move will let Henry Boot focus on land, property development and premium homes, which it sees as its main growth areas.
HBC was not part of its medium-term plans and has only made a small impact on group profits.
The company said the sale will make its business simpler and lower its risk.
Around 21% of the group’s workforce will move as a result of the deal.
Under PWS, the business will be called HBC Construction Group.
The deal will give the HBC management team more freedom to grow the business and expand its order book than if it had stayed with Henry Boot.
The vendor loan note will run for five years and carry interest at 2.1% above the Bank of England base rate.
Henry Boot will support HBC for a short while through a transitional services agreement, with two of its representatives on the HBC board until the loan is paid back.
The HBC management team has given personal guarantees, and there are limits on pay in line with group policy.
Henry Boot could get more money if PWS sells all or a major part of HBC within eight years, and there is a profit share if HBC achieves a net margin above 3% over the next five years.
The vendor loan note is expected to be valued at less than £4m in the accounts because of uncertainties over future cash flows.
Any excess will be shown as profit on disposal.
The deal is set to complete by year end 2025.
Tim Roberts, CEO at Henry Boot, said: “The sale of HBC which we are announcing today allows Henry Boot to further its strategic focus on high quality land, prime property development and premium homes.
“It also enhances prospects for long term growth with a more focussed portfolio of activities with greater synergies.
“While HBC’s contribution to the group is relatively small, it is a well established business with a strong track record of delivery and an excellent management team and we wish them well for the future.”
Lee Powell, managing director at HBC Construction Group, said: “Today’s Transaction represents a hugely exciting opportunity for everyone at HBC as well as for our valued clients and stakeholders.
“After an extremely long association with Henry Boot, we at PWS have a clear plan for growth as an independent business while ensuring we maintain our focus on excellent customer service and delivery.
“We would like to thank Tim and the entire team at Henry Boot for their support in facilitating this transaction.”
