Understand current trends in facilities management and get the latest insights on what's happening across the sector
With the strongest first half year performance regarding M&A activity, our Q2 analysis shows what is behind this drive. With high levels of private equity, US interest and a decarbonisation focus, facilities management services have remained a resilient asset class within the current economic uncertainty. Lenders also seem to be taking a similar view.
You can find full details on the current prospects for facilities management in our Q2 2022 sector review.
In the first quarter of 2022, there were 42 deals – the highest number since this report began in 2009. This contributed to another record, the strongest first-half performance, at 69 deals.
Why? Maybe it's because the UK is facing recessionary headwinds that this resilient sector is so active. Investors are seeking haven in its strong recurring revenues, regulatory-driven and critical demand, and visibility on forward order books.
A growing focus on ESG, and specifically energy management and transition, has also helped drive deals in 2022, with strong interest from US acquirers, two themes we’ll explore below.
Throughout the whole of 2021, there were no deals involving catering businesses in the first half of 2022, due to uncertainty around post-pandemic working patterns.
We continue to see a steady flow of deals involving soft services, which benefit from economies of scale and performed well during COVID-19. Notable H1 deals in this space include Atalian Servest’s acquisition of Incentive FM Group. We provided sell-side advisory services.
Otherwise, fire and security continued to dominate deal activity, accounting for the majority (25.7%) of deals in the first half of 2022. New regulations continue to drive demand in this subsector.
Deals with private equity (PE) involvement accounted for 41% of deal volume versus 48% in 2021.
PE views FM as better placed to stand up to macroeconomic challenges than other sectors.
In particular, it's piling into hard and technical FM, such as fire services, which benefit from regulated and non-discretionary spend.
Trade buyers and PE-backed trade buyers, on the other hand, are targeting soft services for consolidation opportunities.
The ratio of domestic deals to UK deals involving another country in H1 2022 remained the same as in 2021 at c20%:80%.
There were eight deals involving US buyers in the first half of 2022. This accounts for more than half of cross-border transactions.
US buyers are benefiting from a devaluation in Sterling and relatively cheaper multiples than their domestic market. Post-Brexit, there's also a trend towards more regulatory synergy between the two nations in addition to the historical cultural ties.
In line with the UK Government’s pledge to reach Net Zero by 2050 (and the accompanying regulation), we're seeing an increasing number of deals involving both commercial and residential decarbonisation and energy transition firms.
To combat rising energy costs and ensure regulatory compliance, property owners and building managers are having to think green in all aspects of operations, from upgrading existing appliances to installing new infrastructure such as solar panels and EV charging points.
In April, Nasdaq-listed Blink Charging acquired Electric Blue (EB Charging) to gain a foothold in the UK. The deal adds more than 1,150 chargers to Blink’s footprint and provides access to clients such as local authorities, NHS healthcare trusts, universities and private fleets. We provided sell-side advisory services.
In May 2022, NYSE listed Johnson Controls acquired Asset Plus to “supercharge its UK decarbonisation strategy”. Asset Plus provides strategy and project management for energy efficiency measures and retrofitting. Its clients include the NHS, educational establishments, and local authorities. We provided sell-side advisory services.
In June 2022, Mitie Group acquired Custom Solar, a solar power solutions company specialising in the development, design, installation, and maintenance of solar power systems for public and private sector clients. The deal is part of Mitie’s ambition to be a leading provider of end-to-end green energy solutions, having previously acquired Rock Power Connections in November 2021 as part of building out its EV charging capabilities.
Other deals in this space include RSK’s acquisition of Optisol and Agility Eco’s acquisition of Alto Energy.
We expect to see more PE activity in the decarbonisation and energy management space in the coming months.
Post pandemic our index of FM quoted companies bounced back ahead of the FTSE main index. FM stocks remain favoured by investors demonstrating the robustness of the sector in uncertain times.
Of course, no sector is completely sheltered from economic headwinds. FM is subject to the same pressures concerning materials and wage inflation and employee retention as other sectors.
Investors are seeking companies that are dealing with these issues. In response, several of our clients are exploring ways of reducing attrition, such as increased investment in training and development. Privately owned companies are also looking for alternative ways to incentivise employees, for example by moving to an employee-owned trust model.
Overall, however, we see every reason for FM and the built environment services’ sectors record-breaking run to continue for the foreseeable future.
For more information and guidance, get in touch with Usman Malik.
Facilities management accounts for around 7.5% of UK GDP (depending upon how it's measured). Pre-pandemic it was predicted to demonstrate a compound annual growth rate (CAGR) of 1.42% until 2026. However, the sector now finds itself in a position of sizeable exposure to macroeconomic events. Can it still achieve its forecast growth?
Facilities management firms should be open to mobility. Savills notes an uptick in fitting costs and service charges globally while land prices remain at record highs – this is compounded by the end of the stamp duty holiday and rising interest rates. Even for rental spaces, it’s likely that landlords will pass through these costs through higher rent. Consequently, it may be beneficial to relocate (and potentially downsize) offices, which can accommodate an increasingly flexible labour force.
However, FM leaders also need to consider potential detriment to talent retention. Compounding relocation prospects with wage inflation, hybrid working and both pecuniary and non-pecuniary competitiveness, firms should ensure they can attract and retain employees to meet demand and grow.
Following the COP26 climate summit, there is a renewed onus on ensuring that new initiatives are achieved sustainably under increasing governmental scrutiny. As facilities management businesses look to reconfigure working models, now is the perfect time to integrate this goal. Ultimately, FMs must be patient and gather ample data to make well informed decisions regarding sustainable operating strategies while navigating the next few years.
MTW Research projects that the facilities management sector will reach 98% of pre-pandemic sales in 2022. Considering the web of complexities which lie ahead, this would be a positive outcome. To deliver on these forecasts, agility and innovation will be essential given the nature of the economic headwinds that will directly and indirectly impact the sector.
As lenders recalibrate their appetite for the bearish economic outlook, it’s critical that FM businesses give appropriate consideration and plan ahead for any refinancings due in the next two years or planned growth financings. Borrowing proposals will need to robustly address lenders' concerns for the economic headwinds ahead.
For more insight and guidance, get in touch with Kevin Coates.