The only official magazine of The Cleaning Show

Merger and acquisition activity to continue in UK health and education FM sectors

Published 23rd December, 2015 by Neil Nixon

Merger and acquisition activity to continue in UK health and education FM sectors

The 'Facilities Management Outsourcing - Health and Education Market Report – UK 2015-2019 Analysis' has recently been published by AMA Research. It concludes that the market value for outsourced integrated services and TFM in health and education has fallen during 2015 and is now estimated to be worth around £3.5 billion. The potential of facilities management outsourcing in the health and education sectors has been limited since the beginning of the review period, as an increase in outsourcing has been offset by the decline in new large scale projects coming to the market, due to the cancellation of large scale capital expenditure programmes in 2010 and budget cuts introduced in 2012.

However, the underlying trend towards outsourcing an increasing array of services, including a gradual shift towards 'bundled service' and TFM contracts, has been a positive influence on growth, adding to contract values. This is likely to continue as efficiencies are sought in order to operate within ever tightening budgets, prompted further by a political focus on private sector involvement and greater levels of co-operation across regions and departments. Healthcare represents the largest sub-sector in this market, while FM outsourcing within the education sector is less well established.

The public health sector has undergone a period of restructuring which has limited the development of the FM market in this sector, and significant changes also came into effect in April 2013. However, the market is thought to have started to normalise from these effects and the scope for increased penetration nevertheless remains a positive influence, supported by the Government's encouragement of more cross-regional co-operation in procurement. Energy conservation is also likely to remain a key driving factor within the FM market.

The education sector had been expected to represent one of the most dynamic end use sectors for FM outsourcing, but is now likely to remain limited. The cancellation of Building Schools for the Future (BSF) and concern over the value of some long term PFI service contracts, coupled with the restriction on budgets, has seen new contracts decline and being renegotiated in order to bring down existing costs.

Merger and acquisition activity amongst FM providers has continued and there have also been a number of instances of business failures and market withdrawals. This has been influenced by market maturity, changes in procurement practices and moves by larger providers to expand services and geographic coverage. This trend towards consolidation is likely to continue over the medium term.

Energy conservation is likely to remain a key driving factor within the FM market. Volatile energy costs and legislation relating to carbon emissions and sustainability will encourage organisations to look at reducing consumption through energy management. While energy management already forms part of most FM contracts, the necessity to employ more complex technology and monitoring equipment is likely to enable FM providers to add value, with many providers expanding their provision in this sector.

“The announcement of a compulsory 'lsquo;Living Wage' from 2016 is likely to result in inflationary pressures and resulting market growth as FM contractors pass on these increased labour costs” said Keith Taylor, director of AMA Research. “Some absorption of the costs and erosion of margin seems likely, though the 36% rise in 'Living Wage' up to 2020 will probably be impossible to totally absorb.”

The outlook for the FM outsourcing market within healthcare and education is considered to be modest over the short to medium term, reflecting government focus on private sector involvement balanced by the need to work within restricted budgets. Focus on 'value for money' continues to support the market in terms of outsourcing penetration, although it can limit individual contract values.

The 'Facilities Management Outsourcing - Health and Education Market Report – UK 2015-2019 Analysis' is available now and can be ordered online at www.amaresearch.co.uk.

Article links

http://www.amaresearch.co.uk