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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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.