How Support Services are Going for Green

Government’s net zero ambitions are driving increasing regulation across all sectors of the market, with ESG compliance now a major concern for businesses. Companies have begun to incorporate ESG into their management policies and business strategies to realise sustainability management and transformation. Buildings are becoming smarter and office spaces are evolving, requiring specialist expertise to implement and operate effective, compliant solutions.

But with buildings producing 25% of all UK emissions, the way they are built and operate is increasingly in the spotlight. RICS has recently called for urgent action, as existing policy is insufficient to address the problem.

How is the landscape evolving? What are the opportunities for support services providers? And how is M&A enabling support services to go for green?
 

Demand for sustainable services is evolving and increasing

Green regulations are driving the requirement for increased compliance. From building fabric and M&E installations, to the day-to-day handling of energy, water and disposal of commercial waste – all aspects of how a building impacts on the environment are under scrutiny.

The energy crisis and high inflation have brought these issues into sharp focus. While businesses are grappling with how they can reduce costs and make their operations more efficient, they are also weighing up how to shape their workplaces for the future.

Repeated episodes of "work from home" guidance during the pandemic have created a shift in working patterns. While some businesses are choosing to release space, others are re-configuring to meet the needs of their evolving workforce. In this case, it makes sense to upgrade the build, to both future-proof for rising sustainability regulation and save money in the long run. In fact, energy efficiency improvements and net zero considerations are emerging as a key driver for office refurbishment, with energy-efficient grade A space reported to be attracting a notable rental premium.

Although business confidence, investment and decision-making are complicated by serious uncertainty in the markets, there are clear gains to be had from pressing on with sustainability initiatives in their physical infrastructure. Increasingly, shareholders and employees expect to see businesses articulating how they will achieve net zero targets. Whether it is the installation of electric vehicle charge points or carbon offsetting, stakeholders expect sustainability to be on the agenda.

Support services businesses have great insight into these issues and arguably are uniquely positioned to help businesses identify and deliver sustainable solutions. We have seen many providers turn to M&A to gain green expertise and meet their clients’ evolving needs.
 

M&A and ESG: How M&A is enabling support services to go for green

Sustainability is increasingly a major driver of M&A opportunities. It explains the huge surge in EV infrastructure installation and maintenance deals, which counted nine transactions in the last year. Mitie further pivoted towards this market opportunity with the acquisition of Rock Power Connections, and Brickability entered the market with the acquisition of HBS NE. US Corporate Blink Charing also made inroads to UK EV charging services with the $23.4 million acquisition of Electric Blue.

Waste management deals have also been a key theme as businesses seek help from specialist providers in reducing their carbon footprint. Spanish business Urbaser, which is backed by Platinum Equity, made three acquisitions in the UK as it focuses on building its operations to help businesses conserve resources, reduce carbon, and deliver a circular economy.

But it is compliance transactions that have been the major theme, with services businesses acquiring expertise to help clients meet their regulatory and shareholder requirements. A recent example is RSK Group, a global leader in the delivery of environmental, engineering and sustainability solutions, which recently acquired compliance-driven MSS Group, with a workforce of 600 people.

In fact, compliance services deals increased in 2021 and H2 2022 to become the second largest sub-sector of FM transactions. Listed corporate Marlowe plc was a key contributor to activity, completing no less than 13 sector deals in 2021 and another 7 in H1 2022. The business has made over 70 acquisitions since forming in 2015 and plans to continue its march to drive value in bringing together providers of critical business services.
 

There's finance available for sustainability deals

As businesses position for a sustainable future, there is more funding available to make this a reality.

Many debt providers are offering better pricing to acquirers that are involved in ESG-related deals. For example, RSK’s acquisitive focus has been fuelled by what was the largest private credit backed sustainability-linked financing package, worth £1 billion agreed on the market in 2021. The new debt facilities include an annual margin review based on the achievement of sustainability targets, which are broadly focused on carbon intensity reduction and continual improvement to health and safety management and ethics.
 

ESG in Private Equity

Private equity is firmly invested in the outsourcing sector, and ever keen to maximise opportunities for value creation and growth has been shifting interest towards ESG. With PE firms looking to reduce carbon footprint in traditional funds and more firms launching ESG-focused funds, green targets will be in high demand. This year, record levels of ESG private equity funds have been raised and we are already starting to see more due diligence on ESG matters and more specific warranties on them.

As the energy crisis bites, we expect businesses offering sustainability services to be facing growth challenges as they face increasing demand. Such initiatives are now prerequisites for corporate activities as they become the crux of a company’s business agenda. We also predict highly competitive M&A processes, with high valuations to match. Sellers of businesses should be aware that they will face comprehensive due diligence based on sustainability. Support services businesses that go for green will be aligning with clear growth trends, meeting some of the most pressing client requirements, and be positioning as indispensable advisors with cross-sell opportunity too.

To read more, click here to read the latest i-FM report, which includes unique insights on the most important issues in the facilities management market. Satvir Bungar, Head of Business Services Sector M&A, provides detailed analysis on the latest M&A trends in the sector, which has seen over 1,000 deals complete in the last nine years.

If you would like to discuss the implications for your business, please contact Satvir Bungar.