Facilities management

Overseas investors pile into facilities management sector

Usman Malik Usman Malik

The healthy appetite for quality UK investments in the facilities management(FM) sector among overseas investors continues, due in part to the devaluation of sterling since the EU referendum.

The pronounced fall in consumer confidence following June’s General Election shown by YouGov data1 appears to have had little impact on overall merger and acquisition (M&A) activity in the FM sector.

There was further strong M&A activity in the UK market from overseas buyers in H1 2017, with four deals in Q1 and a further seven in Q2 – well above the three-year quarterly average of 4.25 deals. This continued a trend seen in Q4 2016, with eight overseas deals – the most in a quarter since 2007.

Long-term trends

Foreign interest in UK assets has long been a feature of the sector. Led by active acquirers from the US, Germany and France attracted by the sustainable growth prospects and innovative service models of UK FM players in a well-developed outsourcing market.

France, in particular, has dominated cross-border M&A activity over the last few years. UK companies are very attractive to the active and globally diversified French services sector, in part due to the devaluation of sterling against the euro, as well as proximity.

A number of globally diversified FM players have been looking to build a platform or expand their presence in the UK by acquiring primarily privately-owned or PE-backed UK assets. Buyers appear to be fairly open-minded, looking across the FM spectrum from hard to soft service.

Notable deals

In June, Elis SA announced the acquisition of Berendsen plc in a £2.17 billion deal. This will make the French company a pan-European leader in the linen and workwear rental, laundry services and hygiene market, with combined revenues of €3.3 billion.

Also in Q2, EDF Energy Service acquired Imtech UK & Ireland from Endless LLP, adding to EDF’s UK reach and delivering on the company’s strategy of introducing clients to low carbon solutions.

This followed French company ENGIE’s purchase of Keepmoat’s regeneration business for a reported £330 million in Q1, as part of its long-term commitment to the UK market. It comes hot on the heels of Spie’s acquisition of Birmingham-based facilities and property services provider Triosgroup and Vinci’s acquisition of Doncaster-based Powell Engineering.

Interest from South African buyers

South African buyers are now emerging within the sector and we predict there may be more in the pipeline.

South African group Bidvest acquired Irish FM services company Noonan, which provides cleaning, security and building services across the UK, from Alchemy Partners for a consideration of €175 million.  The acquisition aligns with Bidvest’s strategic intent to expand beyond South Africa in niche, asset light businesses.

Servest, another South African group acquired pest controller Pro-Check Environmental Services in Q1. This forms part of an ambitious diversification strategy following its purchase of building services contractor Arthur McKay in Q4 2016.

South African buyers bring the benefits of time zone, language and cultural similarities. They could bring new processes and thinking to these UK acquisitions, as well as global relationships with property managers and other organisations that might follow their lead into the UK market.

UK companies looking to unlock the global buyer pool should bear in mind that overseas acquirers may be more interested in retaining existing UK management teams than domestic buyers.

A resilient sector

These trends indicate the resilience of the M&A market in the FM sector despite the uncertain economic and political backdrop of Brexit.

The UK FM sector has repeatedly demonstrated its prowess in developing innovative technologies and total service offerings in the face of changing client requirements and rising costs. This is clearly still attracting overseas interest.

Technology's impact on the FM sector is increasing exponentially. This should drive M&A-led consolidation in the UK, as major players seek both scalable technologies and the critical mass necessary to support continued investment.

The market is seeing sustained interest from the global property players in innovative new technologies, as demonstrated by CBRE’s purchase of real estate tech start-up Floored, a leader in 3D graphics technology.

Similarly, Jones Lang LaSalle recently launched JLL Spark, led by two Silicon Valley veterans, to deliver new technology-driven real estate service offerings through strategic investments and by incubating proptech startups. According to JLL, USD2.6 billion was invested in real estate technology companies around the world in 20162.

The large amounts of private equity and corporate capital seeking a home,

and the UK’s strategic importance to global players around the world are likely to sustain deal activity for the foreseeable future.

The current demand for UK assets from overseas buyers represents a window of opportunity for shareholders of UK FM companies seeking an exit, as well as increasing competition for potential homegrown acquirers.

If you would like to discuss these developments with us please get in touch with Usman Malik.

Sources

  1. YouGov - Consumer confidence improves slightly but household finances fall for fifth month in a row
  2. EGI – Head of JLL’s new proptech arm sees ‘tipping point’ ahead