Support Services sector comment – January 2012


2012 started with the announcement of the HS2 Speed rail project, a project that is planned to conclude in 2033 and that will see many workers on the rail sector to retirement.

Over the years rail has been considered a dull place for investors because of its low growth, low margins and low returns on investment. However, UK investors might want to reconsider the sector – at the same time that investors bought German bonds with negative yields on the financial markets the UK government announced this £32 billion investment – rail is not dull anymore…

During 2011 the main focus of the M&A markets was on the high-margin-high-growth markets of outsourcing and Test, Inspection & Certification; and on the consolidating human capital and facilities management sectors. These sectors will continue to receive strong interest but we believe that the rail services market could experience further market consolidation through M&A.

The rail industry in the UK is dominated by the large consortiums that work directly to the National Rail as principal contractors. Companies such as Morgan Sindall, Balfour Beatty, Vinci, Dragados and John Sisk work as main contractors and perform most of the work on the tracks and stations across the country.

However, the rail industry is not limited to the big contractors. Over the years the level of sophistication in the rail sector has developed beyond engineering and construction to include traffic management, modern signalling and telecommunication technologies, software, training, and other consulting services.

If we take into consideration the members of the Rail Industry Association there are 168 market participants in the UK and only 35 provide track work, including contractors, and providers of components & maintenance equipment.

From 2009 to 2011, out of the 31 M&A transactions in the rail sector in the UK, only 3 were of companies that provided construction, track renewal services.

We expect further acquisitions in the rail industry that will lead to further market consolidation


The Capita Group Plc acquired Applied Language Solutions Ltd (ALS), a translation and interpreting services company from the Scotland based private equity firm, Maven Capital Partners UK LLP for a consideration of £7.5m on a debt free and cash free basis. In addition, a further contingent consideration of up to £60m will be paid by Capita Group based on profit performance staged over the next 4 years. ALS reported revenue of £10.6m for the financial year ending on 31 May 2011 and employs 130 people. The Capita Group Plc is a leading provider of BPO and integrated professional support service solutions. The acquisition will allow the group to expand its current service range and develop a leading position within the language services industry.

Barentz BV, a Netherlands based provider of marketing and distribution of specialty and commodity raw materials acquired Forum Products Ltd, a South East based supplier of ingredients and finished products to the life science industry for an undisclosed consideration. Forum Products reported a turnover of £89m for the year ending 31 March 2011 and employs 45 people. The acquisition provides Barentz B.V. with the opportunity to establish a strong UK position with a focus on life-science ingredients.

Newvision – Sistemas Inteligentes para Solucoes de Atendimento Lda., the Portugal based, technology services company has been sold by the private equity firm ECS Capital to Tensator Group Ltd and The Riverside Company, a US based private equity firm. Tensator Group Ltd is a South East based, Queue Management solutions provider with operations in Europe and the Middle East. No deal financials were disclosed. The acquisition will enable Newvision and Tensator to leverage its geographical distributions and complement each other’s product line, provide with cross-selling opportunities and offer a wide variety of products and services to the market.

Illinois Tool Works Inc., the listed US based global industrial company has acquired Gang-Nail Systems Ltd, an UK based provider of products, software and services for timber engineering from Eleco plc, for a total consideration of £7.96m. Eleco’s timber engineering businesses generated profits before tax of £0.90m for financial year ended 30 June 2011. As part of the agreement, £6.8m will be paid by Illinois Tool Works Inc. on completion and the remaining £1.2m will be placed in escrow and become payable subject to certain conditions over the next 2 years. The sale reinforces Eleco’s strategy to reduce its involvement in capital intensive building systems activities and expand its international software interests

Illinois Tool Works Inc has also agreed to acquire the timber engineering business of International Truss Systems (Pty) Ltd, the South Africa based full system supplier to the prefabricated timber truss industry.

Moody’s Corporation, the ratings company, acquired Barrie & Hibbert Ltd, the Scotland based provider of risk management modelling tools for insurance companies for of £50m. The acquisition enhances Moody’s Analytics suite of software solutions for the insurance and pension sectors. In addition, Barrie & Hibbert’s offerings and expertise will further develop Moody’s data management, capital calculation and regulatory reporting platform. Post acquisition, Barrie & Hibbert will be integrated into the Moody’s Analytics Risk Management Software segment.

Marwyn Capital II Ltd, the UK based cash shell company, acquired Paragon Creative Ltd, the Yorkshire based, designer and producer of third party attractions for £4ml. As part of the agreement, £1.8m will be paid in cash while £1.5m is to be paid with the issue of shares, a further £0.75m will be paid in cash or stock. As part of the deal, Paragon Creative will be listed on AIM. The acquisition will enable Paragon Creative to enhance its global footprint. Following the acquisition, Marwyn Capital II shall be renamed as Paragon Entertainment Ltd. The management team and vendors of Paragon Creative shall retain 30% stake in the company.

Utilyx Ltd, the UK based energy and carbon management specialist has been acquired by Mitie Group Plc, the UK listed, strategic outsourcing and energy services company for a cash consideration of £14m. The deal excludes an earnout of £1.2m. The acquisition forms part of MITIE’s plans to further develop it’s energy services capability, Mitie is currently ranked as the second largest energy services company in the UK. Utilyx reported annual revenues of £6.6m, for the year ending 31 May 2011, all company employees and management will become part of Mitie.

Portfolio Recovery Associates Inc (PRA), the US listed, outsourced receivables management provider, has acquired Mackenzie Hall Holdings Ltd, the Scotland based, specialist debt recovery and trace solution company for a cash consideration of £33.5m. The acquisition helps PRA to expand its global footprint and develop its service offerings. Additionally, the deal supports Mackenzie’s plans for accelerated growth in it’s contingent collection and niche portfolio purchasing services.

OCS Group Ltd, the UK listed Facilities Management company has agreed to sell Cannon Textile Care, a division of its subsidiary Cannon Hygiene Ltd to Johnsons Apparelmaster Ltd, a company owned by Johnson Service Group Plc. Cannon Textile Care is a South East based, operator of textile rental business, the company reported revenues and operating profits of £16.5m and £0.2m for the year ending 31 March 2011. Johnsons Apparelmaster Ltd is a workwear rental provider and operator of dry cleaning chains, the acquisition is for a reported cash consideration of £6.1m.The acquisition expands Johnsons Apparelmaster’s geographical coverage and strengthens its current product offerings. The transaction will be funded by existing debt facility and is subject to approval by the Office of Fair Trading. The deal is expected to be completed by the end of March 2012. Post acquisition, OCS will continue to operate its washroom services business under the Cannon Hygiene brand.

OCS Group Ltd, the UK listed Facilities Management company providing cleaning, catering, security, transport, technical and hygiene services has acquired part of the business and assets of Fountains Environmental Ltd, Fountains Ltd, Fountains Forestry Ltd and Fountains Support Services Ltd from administration. The acquisition forms part of OCS’ plans to further develop its position as a leading player in the UK FM market. The Fountains’ brand allows the group to broaden its horticulture service offering to customers. Services provided by the Fountains’ companies include grounds maintenance, street scene (street cleaning), landscaping, arboriculture and waste management, as well as forestry and land management. No financial details were disclosed.