Grant Thornton: PE driving M&A activity in UK FM market

06 October 2014 Consultancy.uk

Merger and acquisition (M&A) activity in the UK's facilities management sector has rebounded strongly in the second quarter of 2014, with a 50% increase in deal volumes over the previous quarter, concludes a research from business adviser Grant Thornton. With private equity driving growth and improving fundamentals in place, the outlook for the coming months is positive.

The analysis from the accounting and consulting firm reveals that a total of 24 transactions were recorded in the second quarter of 2014, a 50% increase on the previous quarter's deal activity and the highest volume of transactions since the second quarter of 2013 (25). Despite the uptick in activity in the second quarter of the year, only 40 deals were recorded in the first half of the year – a 23% drop in volume when compared with the first half (H1) of 2013, and below the five-year average for H1 of around 45 deals.

M&A in Facilities Sector H1 2014

The analysis also shows that the total value of disclosed deals in H1 was well below previous years' averages, as the bulk of transactions fell within the smaller or lower mid-cap brackets. However, the actual value of total deals - including those undisclosed - remains much higher, boosted in part by standout transactions such as PAI Partners' secondary buyout involving the European operations of VPS, an empty property security specialist, for a sum widely reported to be over £150 million.

Private equity
Grant Thornton also concludes that the role of private equity in the deal market is growing. For example, the second quarter saw six deals involving PE backers – just one fewer than the total number of PE deals seen in the previous five quarters combined. “A significant increase in PE investment in the facilities management sector has driven a recovery in the overall deal market. With investment activity in the security, catering, landscaping and document management spaces, PE has found a variety of FM sector opportunities across a broad size range within the mid-market,” says David Ascott, Corporate Finance Partner at Grant Thornton.

M&A in Facilities Sector 2007 - 2014

According to Ascott, the main factors behind the reappearance of PE investors in the sector are the “more positive market”, the need to “deploy their significant reserves of capital” and the rapid growth in the availability of leverage*.

Outlook
For the coming period the M&A outlook in the facilities management sector is according to the Grant Thornton positive. Against the backdrop of a rebounding economy, smarter management of the public sector spending cuts faced over the past years and a blooming IPO window, the advisors forecast a sustained recovery in the market.

* In the case of the highest quality assets, debt multiples are reaching the pre-crisis levels of 4x or 5x leverage.

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