Questor share tip: Kier joins Costain's bid for May Gurney Kier is a construction, services and property group specialising in building and civil engineering, support services, house building and property development. May Gurney provides road maintenance, rail and utilities services, waste management and other services. A combined entity would be a major boost to Kier's services unit, bringing revenue at this business unit above £1bn compared with Kier's current £650m. An increased range and breadth of these services, such as recycling and highway maintenance provided to councils, should be beneficial in winning new business. Kier-May Gurney would have contracts with 65 local authority councils out of the 350 across the country. It would provide multiple services to 33 of these. Bundling a range of services is likely to be cost effective for councils when they are outsourcing business, so there is likely to be more of this in the future. The combined revenues would be £2.8bn a year with an order book of £5.7bn. It would also mean Kier would be less exposed to construction, which would move to 50pc of group revenues from 67pc. The construction market is, obviously, tough at the moment. However, Paul Sheffield, Kier's chief executive, told Questor yesterday that his company had already secured 80pc of its forecast construction revenues for the year to June 2014. May Gurney gets 40pc of business from regulated sectors such as water, with the remainder coming from public sector sources. The new company would increase services revenues to 41pc of the group compared with just 21pc of the old Kier. With councils looking to cut costs as austerity continues, the local authority outsourcing market has a positive outlook. Mr Sheffield said he is happy with the proposed price, saying that the return on capital employed in the deal would be greater than the group's 15pc targeted threshold. Also, the amount spent on this deal has brought much new business into Kier. The group could have spent a significant amount tying to win new business over the next few years, without actually winning any contracts. Kier reckons that cost savings following the deal would be £20m, compared with Costain's £10m. The savings will take time to come through, however, and management's conservative estimate is that there will be only £5m in the year to June 2014, £15m in 2015 and the full £20m in 2016. All in all, this looks like an offer that will clinch the deal. However, Costain may still come back with an alternative proposal. Shareholders should therefore wait and see what happens, but the offer appears to be what the market refers to as a "knock-out bid." Await developments.