Business Services Sector Comment – May 2015

Dato

This month saw the announcement that leading construction, services and property group Kier will acquire Mouchel in a €368m all cash deal. The deal is further evidence that M&A in the construction sector has moved away from distressed deals as acquirers look to make strategic acquisitions.

Kier, which recently reported a 50% rise in revenues (13% on a like-for-like basis), has not made a significant acquisition since April 2013 when it acquired May Gurney Integrated Services – a company providing maintenance services to the highways, rail, utilities and infrastructure markets. Now, Kier has announced another highly strategic acquisition which will see it become the leading player in the highway services market and make it well positioned to benefit from the new UK Roads Investment Strategy which is set to raise annual expenditure from €4bn to €5.7bn through 2015 to 2020.

Mouchel is a leading infrastructure and business services group with annual revenues of c. €834m, operating throughout the UK, the Middle East and Australia. The company continues to grow at a phenomenal pace, largely attributable to a successful tender for the Highways Agency’s (HA) Area 9 Asset Support Contract (ASC) – worth €1.3bn for an initial 5-year period. The company also has a thriving joint venture in Australia with EDI Downer.

The acquisition will bring together Mouchel’s leading position in strategic highway services with Kier’s leading position in the local authority roads market to create the number one player servicing approximately 28% of the UK’s strategic road network and an order book of €12.9bn as at March 2015.

However, it has not always been rosy for Mouchel – in fact, quite the opposite. In 2012, a consortium of banks stepped in to rescue the company in a debt-for-equity deal which saw the highly leveraged business reduce its net debt position by €121m. The group – which once had a market cap of over €278m – has been plagued by accounting errors, contract mistakes, management resignations and failed takeover attempts.

The wider European construction services market has also seen a rise in deal volumes. Leading industrial services company Bilfinger SE, which is in the process of transitioning away from construction contracting to a services business, divested its infrastructure construction services in Germany, Austria, Norway and Sweden to Implenia AG. The acquisition, which valued the business at €250m, will add a further €650m of revenue and see the group take an important step in its internationalisation strategy. It will also help to position the Swiss-based firm as a leading expert in complex infrastructure projects. Bilfinger intends to use the proceeds of the deal to partially repay an internal group loan, as the company looks to strengthen its balance sheet and restore investor confidence following a series of profit warnings and management changes.

Whilst the construction sector still faces many challenges – in particular margin erosion below the historic average of 2%, inflation in material prices and severe talent shortages – a recent report published by the CITB suggests that the outlook is far more positive, with the industry expected to grow at a modest 3% per annum from 2015 to 2019. Certainly on the M&A front, we are seeing a significant uplift in the level of deals and thoroughly expect this to last. Companies continue to turn to M&A in order to help with positioning for mega-projects that require a longer commitment of time and capital but also deeper pools of highly skilled talent. Equally, targets that bring new capability to an existing firm are also attractive.

 

Notable Business Services Deals

Growth Capital Partners, the UK-based private equity firm, has acquired an undisclosed stake in FLYdocs Systems Ltd, the UK-based company engaged in providing records management solutions to commercial aviation operators and lessors, for an undisclosed consideration.

Towers Watson & Co – the listed US-based company engaged in offering consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk & capital management – has acquired Saville Consulting, the UK-based provider of psychometric assessment, consultancy and training services, for a consideration of €58m.

Staffline Group plc has acquired A4e Ltd for €47.6m, on a cash-free and debt-free basis. A4e Ltd – the UK-based company, headquartered in Sheffield – is involved in designing, developing and delivering front-line public services.

NTG Nordic A/S, the Denmark-based company that provides land-based transportation solutions, has agreed to acquire the Scandinavian road freight business operations of Posti Group Corporation, the Finland-based provider of daily mail delivery services to media and trade & services industries, for an undisclosed consideration.

Lambert Smith Hampton Ltd – the UK-based company engaged in providing commercial property consultancy services and a subsidiary of Countrywide plc, the listed UK-based real estate and financial services group – has acquired Tushingham Moore LLP, the UK-based company engaged in providing property consultancy services, for an undisclosed consideration.

Utilitywise plc, the listed UK-based company engaged in offering procurement and energy management products and services, has acquired t-mac Technologies Ltd, the UK-based provider of energy management systems, for a total consideration of €30m.

Pennon Group plc, the listed UK-based provider of water and waste management services, has acquired SembCorp Bournemouth Water Ltd, the UK-based supplier of drinking water, for an enterprise value of €264m.

Catacap Management ApS, Access Capital Partners and Danica Pension acquired GSV Materieludleining A/S and Pitzner Materiel A/S, the Denmark-based equipment rental agencies. The deal is estimated to be valued at between €94m and €107m.

The management of FMG Ltd, the UK-based independent outsourcer of fleet incident management and specialist recovery services to the fleet, leasing and insurance marketplace, has acquired the company in a management buyout transaction backed by Endless LLP.

The management of Red Industries Ltd, the UK-based waste management firm providing waste collection, recycling, recovery and treatment services, has acquired the company in a management buyout transaction for an undisclosed consideration.

Next Wave Partners LLP, the UK-based private equity and venture capital firm, and the management of CMS UK Ltd, the UK-based operator of e-commerce logistics, have acquired the company in a management buyout transaction from CMS Graphics Inc.

ARM Investment Managers, the Nigeria-based company engaged in providing a diverse range of asset management services, has acquired Mixta Africa SA, the Spain-based property development company that focuses on developing affordable housing, from a group of vendors and its management for an undisclosed consideration. The deal is estimated to be valued at €6.3m.

Gregory Distribution Ltd has acquired Framptons Transport Services Ltd, the UK-based provider of transport and logistics services, through the purchase of its parent company PF Holdings Ltd. The consideration is undisclosed.