....as private equity buyers renew interest in sector
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.
Analysis by leading business and financial adviser Grant Thornton UK LLP, in its latest Insights into Facilities Management report, shows a total of 24 transactions were recorded in the second quarter of 2014. This represents 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 (beginning April to end June), 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.
The total value of disclosed deals over the period was also 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 empty property security specialist VPS, a TDR Capital-backed entity.
Q2 2014 saw renewed interest from private equity (PE) buyers in the sector. Having largely steered clear of the sector in recent quarters, 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.
David Ascott, Corporate Finance Partner at Grant Thornton UK LLP, commented: "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.
"Aside from the generally more positive market and economic fundamentals, as well as a need for PE investors to deploy their significant reserves of capital, the main factor behind the reappearance of PE investors in the sector is most likely boosted by the rapid growth in the availability of leverage. This, driven by new alternative debt funds and returning appetite among the main lenders, has meant that PE buyers have once again been able to use senior and subordinate debt to put together the sort of bids that win big deals – even against cash-rich trade buyers.
"A slowdown in trade buyer activity, coupled with renewed growth prospects and improved financing conditions is creating a more fertile climate for PE investment in the sector; which is encouraging – particularly ahead of any uncertainty created by the 2015 election year."