Business Services Sector Comment – March 2014

Date

This month saw the announcement of two interesting deals within the employee benefits sector.

US-based Aon announced that it had agreed to acquire Lorica Employee Benefits. Lorica is a specialist provider of employee benefits, insurance, healthcare, risk and absence management to individuals and corporate clients. The consideration was not disclosed.

Earlier in the month, AIM-listed employee benefits provider Personal Group announced the acquisition of Lets Connect IT Solutions for a consideration of up to £12 million. Lets Connect IT Solutions provides home technology employee schemes to the private and public sector.

These transactions highlight the growing M&A activity within this sector over the last few years. The employee benefits market in the UK is dominated by four global players: Aon, JLT, Marsh and Towers Watson. These companies have expanded over the years through mergers – Towers Watson was formed through the merger of Towers Perrin and Watson Wyatt in a deal worth $3.5 billion in 2009, JLT acquired HSBC’s Actuaries and Consultants division in a deal worth £27 million and Aon acquired Hewitt Associates in 2010 for $4.9 billion.

Private equity have also been active in the sector with US-based ABRY Partners & Veronis Suhler Stevenson acquiring Thomsons Online Benefits in 2013, and CBPE acquiring Xafinity Consulting in 2012.

The demand for better efficiencies and cost savings – combined with the changing regulatory environment within the private and public sector – has led to increasing employee benefits consulting and outsourced services, in particular the use of online technology to help facilitate the processes. There will be more opportunities to develop these offerings to meet the growing demands for services such as healthcare for employees and the ageing population. The announcement by the Chancellor this month that compulsory annuities would be abolished will increase the demand for pension consulting services over the coming years and we predict significant deal activity within the sub-sector of employee benefits.

Business Services Deal Highlights

Electra Partners’ portfolio company Cala Group announced the acquisition of Banner Homes, the luxury homebuilder. Electra Partners invested £15 million into homebuilder Cala to facilitate the acquisition.

Specialist waste management firm Augean announced the sale of certain businesses and sites of its former Waste Network division. The Hinckley site and assets were sold to Greenway Environmental for £0.4 million. In the second transaction, Cleansing Service Group acquired the businesses based in Rochdale and Worcester for £0.8 million.

Vending machines services company Capital Vending announced the acquisition of Osprey Vending. Capital Vending expects this acquisition will accelerate the growth of the company throughout the UK.

Towergate Insurance announced the acquisition of four companies as part of its expansion plans to improve its regional presence. It acquired Walker Midgley Insurance Brokers, Prestige Insurance Management, Langley Horrocks & Hart Insurance Services and the small and medium-sized business book of business from Direct Insurance Group.

Insurance litigation law firm Berrymans Lace Mawer announced that it had agreed to merge with Scottish firm HBM Sayers to create BLM. The merger is expected to complete in May 2014. BLM will be a £100 million revenue business with 170 partners, 630 lawyers and technical experts and a total of 1,550 employees. They will operate from 12 offices across England, Ireland, Scotland and Wales.

Private equity firm LDC acquired an undisclosed minority stake in CEL Procurement, a Warrington-based provider of procurement services for public sector organisations in the UK primarily in social housing.

Energy procurement consultancy Inspired Energy announced the acquisition of Simply Business Energy and KWH Consulting. The two businesses will be part of Inspired Energy’s EnergiSave division and will form part of an enlarged division providing SMEs with competitive energy contracts.

MML Capital Partners backed business Optionis acquired Dorset-based accountancy practice Wheatley Pearce for an undisclosed consideration.

Industrial labour staffing services company gap personnel acquired Forward Thinking, a Derbyshire-based recruitment agency.

ECI Partners backed the £57 million MBO of Avantia, owner of online consumer home insurance brand HomeProtect. Avantia specialises in insurance for ‘difficult to insure’ risk categories such as homeowners with larger houses, businesses running from home, listed buildings, unoccupied properties, flat roofs and customers with previous convictions.

Logistics services company Stobart Group announced the sale of a 51% stake in Eddie Stobart Logistics, its UK-based transport logistics services holding company, to a group led by CEO Mr William Stobart and backed by Douglasbay Capital. The transaction is valued at £280 million. Stobart Group intends to use the cash proceeds of the sale to fund a £55 million investment in its biomass business Stobart Green Energy, fund a share buyback of £35 million and to repay £100 million of debt.

WYG announced the acquisition of Delta Partnership Solutions, a consulting services provider advising governments and non-governmental organisations to help deliver better public services.

TÜV Rheinland, the German headquartered provider of TIC services, announced the acquisition of Risktec Solutions. Risktec is a provider of risk and safety services and offers technical training and education to highly regulated industrial sectors around the world. Risktec’s core industries include the oil and gas industry, nuclear power generation and the railway sector. Risktec operates from 15 offices in the UK, the Netherlands, Middle East and North America.

Textile and dry cleaning services company Johnson Service Group announced its first acquisition since it sold its facilities management services division in August last year to Lyceum Capital Partners. It completed the acquisition of Bourne Services Group, a hotel linen provider, for £22 million.

US-based residential mortgage services provider Carrington Holding Company announced its entry into the UK mortgage market with the acquisition of Clear Financial Solutions, a residential mortgage brokerage firm in Scotland. Carrington will rebrand and operate the company under the name Carrington Mortgage UK.

Intertek Group announced its first acquisition of 2014 with the purchase of UAE-based Inspection Services Ltd (INSPEC), a provider of non-destructive testing services to the energy, oil and gas industries, for £39 million. INSPEC was acquired from Lamprell plc.