Support Services sector mergers and acquisitions comment – March 2010


With a 6th May election date now confirmed election fever is firmly upon us. The main political parties are working overtime and the leaders are ready for battle. But behind the spin, the media stunts, the visits, the events, the speeches and the advertising campaigns the overriding issue is the economy and its recovery.

Regardless of which party wins, public sector cuts are inevitable and maximum value will be driven from every public sector pound spent in an effort to repair the black hole in public finances, although neither party has yet come clean about their proposed “efficiency savings”.

Whilst the widely anticipated cuts will have a negative impact for many UK companies exposed to public sector contracts, the outsourcing giants look set to reap the benefits.

Shares in Capita and Serco have reached record highs in the last couple of weeks, evidence that investors share the belief that outsourcing will be at the forefront of the impending government’s agenda. Perfect timing then for Babcock which has finally shook hands on a deal to buy rival, VT Group. The £1.33bn merger will create one of the UK’s largest outsourcing firms with scale enough to take advantage of government defence procurement contracts.

One of the first big casualties of the public sector purse strings is construction services giant Jarvis, who this month called in the administrators. The once thriving business who was, at one time, the UK’s biggest construction company has been hit by cutbacks in railway maintenance work. The company came close to collapse in 2004 after running up huge debts on over-ambitious bids for Private Finance Initiative contracts.

Since then it had sold off several operations to concentrate on rail maintenance, leaving Network Rail as its biggest customer.

On a more positive note, M&A activity looks set to continue across the sector with major overseas corporate’s announcing their intentions to buy in the UK. Aramark, the US based food and facility services business announced it is seeking bolt on acquisitions in the facilities space following its acquisition of Veris plc; and Hinduja Global Solutions, the India based outsourcing specialist, has confirmed its plans to seek opportunities in the UK.

The arrival of spring has also seen a flurry of activity in the sector from Private Equity with LDC’s £10m stake in energy efficiency equipment supplier Matrix, Sovereign’s £20m investment in drain inspection company Euro Environmental and Gresham’s £12.3m investment in outsourced claims management company, Lanes Assistance Services. A sure sign there is confidence again in the market. As for the election, whoever wins faces profound challenges, not only in the economy but in restoring faith in the government, not an easy task.


Sovereign Capital Partners invests £20m in the management buy-out of Euro Environmental Group (EEG), a Scottish based provider of drain and sewer cleaning, inspection and repair services. Founded in 1997, EEG operates from nine sites across Scotland and England. Sovereign sees this as a strategic investment due to the predominantly Victorian sewage infrastructure across the UK, which requires ongoing maintenance.

LDC invests £10m in Matrix, one of the UK’s leading integrators of building energy management systems and consultancy services. Matrix which is headquartered in Manchester, operates a UK-wide network of regional offices, and is one of the largest independently-owned integrators of building energy management systems, with expertise in remote monitoring and energy optimisation services. LDC invested its £10m of equity for a significant minority stake in the business with bank funding provided by HSBC.

Newcastle-based environmental and engineering consultancy Entec bought by Amec plc for c. £61m, five years after being bought by its management for £30m. Entec has a leading position in the water services and wastewater sector. It also provides renewable, nuclear and other energy services, industrial engineering, contaminated land and regeneration services, environmental planning and project management services. It has 13 offices in the UK and employs 700 professional staff with expertise in the water, waste, energy and infrastructure developments. Growth Capital Partners (GCP) backed the MBO of Entec from Northumbrian Water in October 2005. The acquisition is in line with Amec’s Vision 2015 strategy of assured growth and broadens the Earth & Environmental division’s geographic footprint in Europe and strengthens its capabilities in the water and energy sectors.

Ceridian, the specialist HR consultancy acquires Intellinet, a provider of workplace management solutions. Intellinet, which was founded by Alan Christopherson and Ian Jones in 1992, provides software systems for a range of businesses including major retailers such as Matalan, Halfords and Republic. The firm employs around 12 staff, and in the year to September 30, 2009 it made a pre-tax profit of £341,540 on turnover of £1.7m. Ceridian also recently announced it was set to create 200 new jobs following the relocation of its offices in Renfrewshire.

Northgate is to become the second-largest HR provider following the acquisition of Convergys’ human resources outsourcing division. Northgate paid £66m to buy the division which will substantially boost its presence in the key North American market and increase its appeal to large multinational companies looking to outsource on a global basis. It is the second big deal completed by Northgate since it was taken private by Kohlberg Kravis Roberts in 2007 after the US private equity company backed the acquisition of Anite’s public sector division.

Building services group T Clarke plc, acquires Lancashire-based D&S Engineering, for a cash consideration of up to £11.6m. D&S provides a range of facilities management services to a blue-chip UK customer base. For the year ended 30 September 2009, D&S Engineering reported turnover of £16.6m and pre-tax profit of £0.5m. The acquisition is part of T Clarke’s strategy to broaden its range of services to provide its customers with a more comprehensive offering. The acquisition follows an announcement from T Clarke stating pre-tax profits had dropped 49 per cent in 2009 against a turnover which fell 19 per cent. The contractor’s profit was hit by £1.4m of restructuring costs and £1.9m of bad debts.

Recruitment specialist Meridian Business Support acquires independent recruiter Westaff. The acquisition adds a further 18 branches to Manchester-based Meridian’s network, establishing a total of 90 branches nationally. The acquisition puts the company on track to hit its £200m turnover target. The deal was funded by Barclays Bank.

Distribution and outsourcing group Bunzl plc acquires Swiss firm Weita Holding AG and its subsidiaries. Weita supplies cleaning and hygiene, foodservice, retail, healthcare and safety consumable products to both redistributors and end users throughout Switzerland. The acquisition will extend Bunzl’s operations into these sectors in Switzerland and significantly increases the size of its existing retail supplies business there. Financial details were not disclosed.

Thomson Reuters acquires Round Table Group, a leading provider of expert witness consulting services to litigators. Round Table provides litigators with expert witnesses on hundreds of subject matters to assist them in pleading their cases. The company features a network of over 100,000 expert witnesses, including industry experts, corporate executives and academics, and a database of proprietary expert content reaching over 750,000 records. Financial details were not disclosed.