Business Services Sector comment – December 2016 – Facilities Management

Facilities Management: Restructuring continues to create opportunities for M&A

The recent news that pest control specialist Rentokil Initial plc will spin-off 10 European workwear and hygiene businesses to Germany-based CWS-Boco, a subsidiary of family-owned Haniel, is further evidence that support services companies continue to recalibrate their strategies and in turn, divest non-core services and geographies.

UK-based Rentokil Initial plc, a company that is increasingly turning to technology to deliver its services, announced as far back as 2013 that the group would look to focus on the higher margin, high-growth pest control market. This market is achieving rapid growth as a consequence of rising demand in nascent emerging markets with growing middle classes, tighter regulation and enforcement, global urbanisation and overall a greater intolerance towards pests.

The deal is transformational for Rentokil in allowing the group to focus its efforts on pest control where it will generate 60% of its revenue post completion. Further, the total proceeds of €615m will significantly help to pay down debt and increase the group’s bolt on M&A spend guidance to €110m in 2017.

Other support services groups to have sold-off divisions include that of ISS A/S who parted with its Finnish security operations last month for €35m; Capita, who recently announced it will sell its Asset Services division; and Mitie, who is currently seeking a buyer for its domiciliary care business. Further, Serco has already divested its BPO unit in India and attempted to sell its environmental services business, while G4S recently concluded on the sale of its security and manned guarding business in Israel for approximately €104m.

A look at the recent share price performance of the UK’s largest outsourcers and one quickly starts to understand the divestment programme. The respective share price of Capita, Serco, G4S and Mitie, currently sits at levels below that of 2012 and all this in the face of austerity which was supposed to bring increased opportunity. Two of the biggest challenges the groups’ face come in the form of the introduction of the national living wage and as such the material impact on soft services, and the outcome of the referendum that resulted in a short-term hiatus in awarding contracts, but also increased complexities in pricing structures due to ambiguity around the free movement of people.

Over the coming years, corporates will continue to reshape their portfolios to focus on services and geographies where they have a competitive advantage. In turn, this will present M&A opportunities for well capitalised trade parties and platforms for private equity groups.

 

Notable Deals

Bunzl plc, the listed UK-based distribution and outsourcing company, has agreed to acquire Sæbe Compagniet ApS, the Denmark-based distributor of a cleaning and hygiene products. Clearwater International advised the founders of Sæbe Compagniet on the sale.

SPIE SA, the listed France-based company specialising in electrical and mechanical engineering, has acquired TriosGroup Ltd, a UK-based provider of facility and property related services.

Inspiring Learning Ltd, a UK-based provider of residential activity centres and educational trips for primary and secondary school children, has been acquired by Bridgepoint Development Capital.

Servest Group Ltd, the South Africa-based multi-service facilities management provider, has acquired Catering Academy Ltd, a UK-based independent contract catering company, for an undisclosed sum.

Growth Capital Partners, the UK-based private equity firm has acquired Shorterm Group Ltd, a UK-based specialist technical engineering recruitment and training company. The deal sees Chamonix Private Equity, which acquired Shorterm Group in 2006, exit its investment in the business.

Navigant Consulting Inc., the listed US-based professional services firm, has acquired Ecofys International BV, a Netherlands-based energy and environmental consultancy.

ALS Ltd, the listed Australia-based provider of testing, inspection & certification services, has acquired ALcontrol UK Ltd, a UK-based food and environmental analytical services company.

United Parcel Service, Inc. (UPS), the world’s largest package delivery company has entered into a definitive purchase agreement to acquire Marken Ltd, a UK-based provider of supply chain solutions to the life sciences industry.

Project One Consulting Ltd, a UK-based independent consultancy specialist has undergone a management buyout. The transaction will see one of the founders retire from the business.

Renew Holdings plc, the AIM-listed infrastructure engineering group, has acquired Giffen Holdings Ltd, a UK-based provider of mechanical, electrical and power services across the railway sector, for €7.8m.

Limerston Capital, the UK-based private equity firm, has acquired AdviserPlus Business Holdings Ltd, a UK-based provider of managed HR advisory solutions.

HIG Capital, the US-based private equity firm, has acquired a 49% stake in Ecore BV, a Netherlands-based recycling group. Ecore has a workforce of 1,360 people and posted €1.1bn in turnover last year.

Groupe CAT, the France-based provider of logistics and transportation services, has agreed acquire Síntax Logística SA, a Spain-based provider of car logistics services, for €55m.