Private equity firms, along with international and local engineering companies, are howling at the door of failed group RCR Tomlinson, which collapsed into administration this week.
The engineering services provider is now for sale, either through an investment bank or its administrator McGrath Nicol.
It is anticipated that the firm will be broken up into parts, likely to be under the categories of energy, infrastructure and mining. The latter two parts are expected to be most attractive to buyers.
In recent months, when the company ran into trouble, some questioned whether Downer EDI could take a look at parts of the business, or Worley Parsons.
Left owing is $150 million worth of bonds on issue and as of June about $36m of loans to a syndicate of not just banks but also insurance firms.
Problems for RCR Tomlinson came to a head after liquidated damages incurred from running late on solar projects led to the depletion of working capital.
When the company went to lenders asking for more capital, it was knocked back.
Now the administrators are in the market for additional funding to ensure the business can continue and the sale process is expected to happen swiftly.
Most of the focus has been on RCR Tomlinson’s Queensland projects but those in NSW, Victoria and Western Australia have also had challenges.
Market analysts say RCR Tomlinson had a reasonable electromechanical business but came unstuck after investing heavily and quickly in the solar energy market.
This came with the emergence of government funding to promote cheaper and cleaner renewable energy alternatives that made it highly attractive for engineering firms looking for alternative sources of revenue after years of declining business in the resources sector.
One of the challenges for the firm was that it was able to provide only one price to bid for projects, and in many cases, had found that the pricing was based on geological conditions that were different to the costing.
One analyst said: “It was a high-risk strategy of getting into the business without proper evaluation of the site conditions.’’
Once problems emerged with its Queensland projects, other customers were no longer providing the group with forward orders, leaving RCR with no upcoming work and with losses to fund.
A challenge with selling any of the solar contracts is that they are now associated with major losses.
With respect to securing an adviser for a sale process, Macquarie Capital worked on RCR Tomlinson’s equity raising earlier in the year, so it may be well placed to offer support.”
RCR Price at posting:
87.0¢ Sentiment: Sell Disclosure: Held
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