Business Services Sector Comment – November 2014

Dato

Back in April, Clearwater International reported on the growing trend for facilities management (FM) companies to acquire contract caterers in an attempt to provide a total proposition service. Now in November, we are back talking about FM but this time discussing two very different strategies that continue to shape the European landscape.; construction and industrial groups either investing in or divesting FM divisions.

The first trend, and a key theme over the last couple of years, has been construction and industrial groups divesting their FM divisions as they look to refocus on their core offerings. This month saw the announcement of a further deal to support this on-going trend, as Voith GmbH sold their wholly-owned FM subsidiary DIE Instandhaltung Ltd. & Co. KG to Austrian listed construction group STRABAG SE. The €69m transaction, reported at an EV/EBITDA multiple of 4.7x, will provide considerable expansion for STRABAG SE in Germany (where DIE generates 75% of its revenue) but also broaden its service portfolio to include industrial cleaning. Other construction groups to have exited their FM divisions include that of Balfour Beatty and German construction group Hochtief, both in the latter stages of 2013.

During the downturn, construction groups were particularly attracted to the stability offered by FM with longer-term contracts and more predictable earnings. This helped to offset the project-by-project nature, the lower margins seen in mainstream construction, and ultimately the reduced levels of work commissioned. In addition, it allowed construction firms to service the full life cycle of a project by covering the design, build, maintenance and operation of a building through one tender.

However, particularly over the last few years, the FM industry has undergone intense pressure to reduce costs and this has often led to revenues rising, but at the expense of margins. Now, with the construction industry firmly back in growth mode and appetite for acquisitions on the rise, some have taken the view that shareholder value is best delivered by divesting these divisions. The proceeds from the sale represent an opportunity to pay down debt and build resource to consider future acquisitions that closely align to the company’s core services.

It is not all one way traffic, however, as logic would suggest a successful sale process relies on the identification of a buyer. This dynamic drives the second key theme and typically, in the case of FM businesses, this comes in the form of other larger construction groups who have adopted the opposite strategy of driving further growth and scale in their FM divisions. Good examples of these groups beefing up their FM divisions and capitalising on moderately priced assets include:

  • Bilfinger SE’s acquisition of Europa Support Services in December 2013;
  • Kier Group plc’s purchase of May Gurney Integrated Services plc in April 2013 for €277m;
  • Ferrovial’s acquisition of Enterprise Group Holdings through its UK subsidiary Amey plc;
  • SPIE SA acquiring Hotchief’s FM arm in September 2013 for €313m; and
  • Interserve plc’s acquisition of Rentokil Initial Facilities Services (UK) Ltd in February 2014 for €313m.

Clearwater International expects to see further acquisitions by the larger acquisitive FM businesses through 2015 with a shift towards strategic earnings enhancing transactions. These corporates are strategically focussing on in-fill acquisitions that build out a company’s service matrix or acquisitions that help to consolidate leading positions in attractive geographies. A good example is that of Mitie Group plc, who recently announced that they are looking to make a number of small in-fill acquisitions within their facilities management operation.

The FM sector – both soft and hard – is an area we know particularly well at Clearwater International, having advised on the sale of Stag Security to Servest and the sale of Inviron Ltd to Imtech NV.

 

Notable Business Services Deals

Cision AB, a Sweden-based company engaged in providing software, services and tools to the public relations and marketing communications industry, has acquired Gorkana Group Ltd, the UK-based company providing media intelligence, client relationship management and training & support solutions, from Exponent Private Equity LLP for a total estimated consideration of €250m.

On 21st October 2014, it was announced that Berry Recruitment Ltd acquired Mainline Resourcing Ltd, the UK-based gas, rail and telecoms recruitment services provider. The acquisition supports Berry Recruitment’s growth through carefully targeted acquisitions.

Price Bailey LLP, the UK-based company engaged in providing advisory and accounting services, has acquired Beechams LLP Chartered Accountants for an undisclosed consideration.

Mitie Group plc announced that it has acquired Procius Ltd, a Basingstoke-based pre-employment screening company, from the management team.

Cowi A/S, the Denmark-based company engaged in engineering, environmental science and economic consulting services, has acquired Donaldson Associates Ltd, the UK-based company engaged in providing high-end geotechnical design, tunnel and underground engineering consulting services.

Shepherd and Wedderburn LLP, the UK-based law firm, has acquired Tods Murray, another UK-based law firm.

ABM Industries Inc., the listed US-based company providing janitorial, parking, security and engineering services has acquired GBM Support Services Group Ltd, the UK-based company that provides business support services for the commercial, public, retail and leisure sectors.

Elior SCA, the France-based listed company providing catering, cleaning and facility management services, has acquired Lexington Catering Ltd, the UK-based company engaged in providing catering services to corporate and business firms.

Outsource UK Ltd has acquired Chrysalis Digital Recruitment Solutions, a Manchester-based specialist recruitment services provider.

TC Facilities Management Ltd (TCFM), the UK-based provider of facility management solutions, has acquired CMS Group Facilities Management Services Ltd, the UK-based provider of contract cleaning, window cleaning and waste management services.

Arrow Global Group plc has agreed to acquire CapQuest Group Ltd from TowerBrook Capital Partners LP. CapQuest is a UK-based company engaged in providing consumer debt purchasing and outsourced collections services.

Jark plc acquired MC2 Technical Recruitment Ltd, a UK-based oil, gas and renewable energy recruiter.

Sovereign Capital Partners LLP, the UK-based private equity firm, has acquired SJD Accountancy, a UK-based company that provides fixed fee, limited company accountancy services to contractors, freelancers and small- to medium-sized businesses, and Nixon Williams Ltd, the UK-based company engaged in providing accountancy services to freelance contractors, consultants and interim managers, for a consideration of €125m.

The management of Adler and Allan Ltd, a UK-based provider of professional oil industry services and environmental services, has acquired the company in a management buyout transaction backed by LDC.

On 20th September 2014, it was announced that Noonan Services Group Ltd acquired Resource Services Group Ltd, a UK-based cleaning, security services, front-of-house staff, car park management and window cleaning outsourcing services provider.

Nationwide Accident Repair Services (NARS), the UK-based company that provides automotive crash repair and accident administration services, has acquired Derek Gladwin Ltd, the UK-based provider of crash repair services, for a cash consideration of €12m.

Mott MacDonald Group Ltd, a UK-based engineering, management and development consultancy firm, has acquired JN Bentley Ltd, a UK-based construction and civil engineering company.

Seven Step RPO, the US-based provider of outsourced recruitment solutions and a subsidiary of Motion Recruitment Partners Inc., has acquired Blue Glue Ltd, a UK-based company that also provides outsourced managed recruitment services.

Sodexo Motivation Solutions UK Ltd has signed an agreement to acquire AIM listed Motivcom plc, a UK-based company engaged in the development and administration of third party motivation and incentive programs. The transaction is valued at approximately €50m.

Bluestone Credit Management Ltd, the UK-based provider of debt collection services on asset financing types including car and equipment loans, commercial debts, outstanding tax payments, personal loans, utility payments and shortfall accounts, has acquired Empingham Ltd, the UK-based debt collection agency for utility companies, fitness finance centres and major lending companies.

Clough Ltd, the listed Australia-based company, has acquired Booth Welsh Automation Ltd, the UK-based provider of process consultancy, project management and functional engineering services.

The management of Response Ltd, a UK-based provider of contact centre and business process outsourcing services, has acquired the company in a management buyout transaction from Murray International Holdings Ltd.

On 7th October 2014, it was announced that Elevation Recruitment Ltd, the UK-based recruitment consultancy, has been acquired in a management buyout led by Mr Greg Parkinson and supported by Mr Lee Bhandal. The deal was carried out via the creation of a new company called Elevation Consultancy Group Ltd.

Bureau Veritas SA acquired MatthewsDaniel Ltd, a UK-based energy, utilities, mining, engineering, marine, environmental and renewables industry loss adjusting firm. The consideration was not disclosed.

France-based Onet SA, a waste management, logistics, cleaning and FM services provider, has acquired Spain-based Seralia SA, a cleaning, maintenance, urban and home services provider.

SIS Prosegur, an India-based leading cash management business, has completed the cross-border acquisition of ISS A/S Denmark’s cash management arm. The deal is valued at €19m.

Urbaser SA, a Spain-based provider of waste management and treatment services, has announced the acquisition of Portugal-based Empresa Geraldo Fomento SA, a producer of biogas from waste pits to be used in electricity production. The deal is valued at €145m.