The first half of 2017 saw 48 M&A deals in the facilities management(FM) sector, the highest level of activity recorded since the first six months of 2013. Q2 2017 matched the 24 deals in Q1, on a par with the same period last year.
A positive start to the year builds on a very strong 2016, which saw 105 completed deals. However, there was increased fluctuation in market activity following the EU referendum, with a pronounced bounce-back in the second half of the year.
Domestic deals in Q2 matched the level seen in the previous quarter, with 13 deals, building on a rally of activity in the second half of 2016.
This is a surprisingly upbeat level of activity, given recent economic forecasts. However, many UK FM corporates still appear to be waiting for clarity on Brexit, while a number are focusing on resolving internal issues.
Notable domestic deals
Bellrock continued its service expansion plan focused on property management with the acquisition of service charge and insurance specialist Profile Consultancy. The addition of Profile, which focuses on the retail and leisure sectors, builds on Bellrock’s corporate occupier offering. This followed last year's acquisitions of Property Solutions and software business Concerto.
Private equity (PE) deals
Private equity activity fell to four deals in Q2, just under its three-year quarterly average of 4.1 deals – a marked drop from the seven deals reported in Q1.
Despite the fall-off in PE activity in Q2, some well-capitalised PE investors continued to show an appetite for FM across both the hard and soft sectors, attracted by relatively low risk assets, long-term contracts and stable, recurring revenues.
PE highlights of Q2 included mid-sized support services investor Aliter Capital picking up high voltage cable specialist WT Parker.
And after nearly ten years in its portfolio, NVM sold telecoms integrator Optilan to energy-focused PE house Blue Water Energy.
Increased focus on fire safety
In the aftermath of the tragic Grenfell Tower fire in West London in June and the likelihood of increased fire regulation, the market may see intensified interest in the fire safety sector. A number of national players are already emerging in this space.
Earlier this year Marlowe PLC acquired two fire installation and maintenance companies, Alpha Peerless Fire Systems and BBC Fire Protection, for a combined £9 million, as part of its consolidation strategy in the fire protection sector. In August, Marlowe made a third acquisition in this space, picking up BTE Systems for £1.2 million.
And recently Lyceum Capital acquired Churchesfire in a deal that was already underway before the Grenfell disaster, aimed at building a national presence in the UK's highly fragmented fire safety compliance market.
Strong governance can help you prepare for a sale
FM businesses looking to cash in on the flurry of interest from potential acquirers both at home and abroad need to prioritise robust governance and control systems. Effective systems can make your business a more attractive investment and are essential to manage day-to-day operational risks, such as contract risk and working capital management.
According to Simon Lowe, Chair of the Governance Institute, being clear on how a company continuously monitors and challenges the effectiveness of its control systems is an essential function of governance, which according to its Corporate Governance Review of the FTSE 350 would benefit from more attention.
If you would like to get in touch with us to discuss these developments in more detail, please contact Usman Malik.