International buyers and technology driving a buoyant FM market
How is Brexit affecting FM deal flow?
The UK continues to present growth opportunities for specialist FM providers, particularly international operators. The strategic direction adopted by acquirers is typically influenced by their growth strategy. For some international groups, the UK is seen as an underweight region presenting growth opportunities. As a result, competition remains fierce for high-growth, high-quality businesses driving innovation in FM. These businesses are attracting premium valuations for vendors.
There have been over 400 completed deals since 2015 and the flow of deals in the UK market has remained strong. H1 2018 saw over 70 deals completed across many sub-sectors. This is an increase on H1 2017.
Recent drivers of M&A deals include strengthening of capabilities and entry into new sectors. We have also seen consolidation across all FM sub-sectors and building maintenance-related activities continue to remain highly active. Commoditised activities such as cleaning also continue to contribute to deal flow.
Buoyant activity amongst serial acquirers
Trade buyers remain dominant despite recent high profile PE-backed deals. This is not surprising given the enhanced ability of trade buyers to realise synergies of specialist service companies and innovative knowledge sharing. They can therefore justify higher prices.
In April, we saw a landmark deal where two international facilities management providers, Atalian and Servest, announced a merger to form Atalian Servest, one of the world’s largest FM outsourcing companies, employing more than 125,000 people worldwide. These privately-owned businesses are geographically complementary to one another.
Similarly, in June, Excellerate, a major international force in the security, cleaning and related industries in Africa, acquired LCC Support Services. This is its second UK transaction in 12 months, complementing its initial acquisition of Templewood. The acquisition provides the platform for further organic and acquisitive growth.
All of the M&A processes we are currently involved with have an international angle.
However, 2018 is also becoming a strong year for domestic buyers. Many serial acquirers continue to deliver on their strategic vision through M&A. BDO advised Nurture Landscapes on its recent acquisition of Gavin Jones, which brings together two leading privately owned companies that share a passion for delivering a high quality service. Nurture has made 17 acquisitions to date.
This trend has extended to both listed and private equity backed vehicles. Marlowe plc, an AIM-listed provider of critical asset maintenance services in the UK, is another example with eight deals completed so far in 2018 alone.
Bellrock, a technology-enabled facilities management and property services provider, backed by Horizon Capital, acquired ECO Integrated Property Solutions in April. The latest in a long series of successful acquisitions since original investment, this deal will strengthen Bellrock’s technology-driven facilities and building services.
Private equity have large quantities of cash they need to invest and competition for quality investments remains high. We recently advised OCS Group on LDC’s £13 million investment backing divisional management to acquire OCS’ Retail & Asset Solutions activities.
What next in Facilities Management?
Technology is the key to the future of FM. It will enable providers to align with client business models in an ever-changing built environment. Competition for disruptors driving innovation in FM will continue to influence attractive valuations.
Whilst I see numerous opportunities still available, a key challenge for investors and corporates will be finding and winning the right targets. A differentiating factor is how much you can use technology to further a FM business model further. Our current interactions with potential buyers demonstrate how valuations can be maximised for such assets.