Support Services sector mergers and acquisitions comment – August 2010

Date

The summer has seen a flurry of deals across the sector with not only an increase in deal volumes but also in valuations. Corporates with strong balance sheets and supportive banks have been taking advantage of the mix of opportunities in the market bringing about a renewed confidence.

Not so for social housing specialist Connaught plc, one of the sectors biggest success stories over the last decade has now collapsed into Administration. The company which employs around 4,400 in its social housing division looked set for problems as its share price began to fall in June and failure to secure further financing led the beleaguered company to call in the Administrators. But was it really the government’s austerity measures that brought this once thriving firm to collapse or were Connaught’s problems of its own making like many of its competition would argue? Whilst rival firms Morgan Sindall, and Mears have agreed deals to pick up the majority of its contracts, let’s face it, they aren’t going to pick up the bills so watch out for more failures in the supply chain.

The effects on the sector are significant and will take some time to settle down. The share prices of Connaught’s competitors have been depressed and confidence in the sector needs rebuilding, not helped by continuing stories of mismanagement in businesses such as ROK which has just seen its Finance Director removed from his position.

Elsewhere in the sector the mood is more positive. UK food service giant, Compass has been on an impressive shopping spree with four acquisitions in as little as four months. In May it announced the acquisition of French food service company Caterine Restauration, closely followed with the acquisition of Southeast Services, a US education foodservice provider, in June, and in August the Group announced the acquisition of Indian caterer, Tirumala Hospitality Services. The most surprising deal however was that of security services provider, Vision Security Group, an indication of a growing trend towards bundled outsourced services. The deal, valued at a very healthy £64m, provided an exit for private equity investor, LDC.

Elsewhere in catering, upmarket catering firm, Searcy is back in private hands after management bought it back from Alternative Hotel Group.

Activity in the Waste sector appears to have picked up following a slow couple of years. AIM-listed supplier of recycling containers, Straight plc has acquired its injection moulding supplier Dyro Holdings, a move which will allow the company to manufacture its own bins. One51 has acquired two companies, Liverpool based waste management firm, Future Industrial Services, and chemical manufacturer and recycler Alchema. Viridor has also showed signs that it is back in the market with its acquisition of material recycling provider, Reconomy. Others deal in the sector include Sims acquisition of Wincanton’s recycling division and Amey’s acquisition of Cambridge based Dickerson Group.

The recruitment market has also shown signs of recovery with Manpower, Adecco and SThree all reporting results ahead of expectations. Specialist healthcare recruiter, Healthcare Locums has been on a shopping spree with the announcement of three acquisitions, Orion, LML and (subject to shareholder approval) Redwood Health. The company which ended offer talks this summer now has a focused acquisition plan in place. Also in healthcare recruitment, Inflexion and F&C Private Equity Trust have sold their stake in specialist nursing recruiter ICS, to The Blackstone Group. In Temporary recruitment, listed staffing agency, Staffline confirmed it is in talks with several potential targets and hopes to close a number of deals before the end of the year, and Servoca, the outsourcing and recruitment services group has confirmed its plans to seek further bolt-ons following its acquisition of Phoenix Employment Services.

Finally and one that I absolutely must mention, Clearwater Corporate Finance advised the shareholders of Teaching Personnel on their £45m sale to Graphite Capital. Having sold the business to RJD Partners in 2007, Clearwater were delighted to help them exit and deliver a return to RJD of over 3x its original investment in just three years.

So on reflection, not a bad summer at all!

Deals

Security services specialist, G4S acquires a 51% stake in Brazilian security systems player Plantech for an undisclosed sum. Plantech provides fully integrated solutions to a diverse range of multinational customers across the key sectors of ports, airports, public transportation, hospitals and hotels. The acquisition marks the second stage of G4S’s entry into Brazil, which is the fifth largest security market in the world.

Compass Group acquires security services firm VSG Group from Lloyds Development Capital for £64m. VSG is one of the UK’s leading independent suppliers of security services to national blue chip organisations, operating across 1,200 client sites and with nearly 6,000 employees. Aside from its headquarters in Northampton, VSG also runs regional offices in London, Belfast and Dublin. The acquisition reinforces Compass’ strategy to establish itself as a leading presence in the support services industry.

Privately owned FM firm OCS Group acquires the business and assets of Legion Group plc and Legion FM Limited from Administrators. The deal sees OCS take control of all Legion assets including contract turnover in excess of £50m covering manned guarding and car parking activities throughout the UK.

Scottish call centre operator, BeCogent, acquired by French firm, Teleperformance SA for £35m. BeCogent runs contact centres for major consumer brands and employs 2,000 people. The deal will make it the second largest operator of outsourced contact centres in the UK.

AIM listed environmental products and services firm Straight Group plc acquires Dyro Holdings for £2.9m. The leading supplier of kerbside recycling boxes previously outsourced all its manufacturing but the purchase will see Straight take about a third of this in-house. Dyro, which employs c.60 staff, earned the bulk of its £10m annual revenues making plastic recycling and waste containers for Straight.

Online market research agency YouGov continues its US expansion with acquisition of Harrison Group. Harrison specialises in concept evaluation, forecasting, branding, business consulting and market modeling across multiple sectors, but with a particular emphasis on the interactive entertainment and wealth sectors. The acquisition will double the size of YouGov’s US operations, taking the number of employees to more than 80.

Healthcare recruiter Pinnacle Staffing Group has agreed the proposed sales of its Agency Nursing and Medical Services businesses to the Ambition 24 Group for £2.75m. The intention after the disposal is to re-focus the company on its doctor recruitment businesses, together with compliance monitoring services.

Education and media specialist Pearson acquires America’s Choice, a leading provider of school improvement services for $80m in cash. America’s Choice provides research-based strategies to help schools, districts, and states dramatically improve student achievement. It is already applied in more than 2,000 schools in 38 states across the US. In the US, America’s Choice will operate alongside Pearson’s K12 Solutions business, already an approved school improvement provider. Pearson is also exploring opportunities to bring the America’s Choice model to an international market.

WS Atkins announces the proposed acquisition of The PBSJ Corporation for a cash consideration of c.£178m. PBSJ is employee owned and one of America’s leading providers of engineering, planning, architecture, construction, environmental and programme management services. Atkins emerged as the winning bidder for PBSJ after Barclay’s Capital Inc. PBSJ’s financial advisor, contacted numerous potential buyers. The acquisition is subject to shareholder approval.