Business Services Sector Comment – January 2013: 2012 overview

Dato

2012 was a year of mixed fortunes. The positive outcome was, despite the current economic crisis in Europe, the British economy remained resilient and continued to offer strong demand for products and services in the support services sector. However the negative was that overall economic outlook worsened and is not expected to improve as the Eurozone crisis continues to unravel.

During the year, the crisis shifted its centre of attention from Greece, Ireland and Portugal, to Spain, Italy and France. These countries started to implement austerity measures in a bid to manage their national financial and economic imbalances, and now represent the biggest threat to the world economy.

In M&A, both Corporate and Private Equity buyers were highly selective in evaluating opportunities and taking time to complete due diligence due to a rise in associated market risks and limited debt availability. We expect this trend to continue during 2013.

At the beginning of 2012, we identified two major trends: firstly, overseas groups considering the UK to be one of the safest and most interesting places to invest in within the EU; and secondly, an increase in large corporate buyers with deep pockets seeking to consolidate their positions in selected markets.

M&A activity within support services confirmed our predictions notably in the test, inspection and certification (TIC), waste management and corporate communication sectors. For example within TIC, global leaders such as Intertek, Bureau Veritas and ALS Group were busy acquiring smaller competitors active in selected end-user markets; within waste management Viridor completed several acquisitions; and in corporate communication Denstu, WPP, and Omnicom completed deals in the UK.

During the current economic cycle, key drivers include enforcement of regulation, public investment, and the need to cut costs and improve efficiencies. The TIC market has particularly strong growth prospects as a result of stricter assurance and certification regulations within industrial and commercial sectors, making it attractive to private equity investors. For example Close Brothers PE’s backing a proven management team to set up Ingemino as an acquisition vehicle in the laboratory testing sector. Between 2011 and 2012, Ingemino made three acquisitions, with further purchases expected in 2013 as it seeks continued market growth.

Clearwater’s support services team advised on several transactions in 2012 including Dutch based technical services provider, Imtech NV’s acquisition of Capula; the disposals of Stag Security to Servest, Direct Group to Ryan Speciality Group (RSG), Williams McKinley to E-Resourcing Ltd; and the management buy-out of Palletower Ltd.

Looking ahead to 2013 we expect M&A activity to continue in these sectors. Other niche areas to watch include Hard FM and Print Management. These support both the private and public UK sectors, and offer significant market expansion and consolidation opportunities; and in the short to medium term Talent management: a high growth industry within HR that is benefiting from the need to cut costs and meet the growing necessity for senior executives at Board level in order to attract, manage and retain talent. During the next 2-4 years, we expect significant interest from private equity and large corporates, especially BPO organisations with or seeking HR capacity.

In summary, the negatives of 2012 were a result of a lack in confidence in the global financial markets and, as we predicted, there was an increase in UK and overseas corporate appetite for M&A activity, which we expect to continue during 2013.

2012 Deals

Highlights of the last 3 months:

December 2012

Ainscough Crane Hire owned by Bradley Hall Holdings Ltd was acquired by TPG Special Situations Partners and Goldman Sachs for an undisclosed sum.

Interserve Plc, the support services and construction group, acquired Advantage Healthcare Group Ltd, a care home operator, from Rutland Partners for £26.5m.

Places for People Group Ltd, the property management and development group, acquired DC Leisure Ltd, the leisure facilities management contractor from Sovereign Capital.

November 2012

CommsProvider LLP, a supplier of communication solutions for the private sector, acquired Mobile Phone Recycling Organisation Ltd.

Enpure Ltd, a UK company which offers water treatment services, has been acquired by Doosan Heavy Industries & Construction, a Korean power equipment manufacturer.

BenhamGoodheadPrint Ltd acquired Polestar UK Print Ltd, one of Europe’s leading independent printing company.

October 2012

The Mission Marketing Group acquired Friars 573 Ltd trading as Balloon Dog for £3.2m in cash.

Viridor Waste Management Ltd aquired Pulp Friction Ltd, a paper collection and processing business for £9m.

Staffline Group Plc acquired office and administration specialists Select Appointments Ltd.