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UK's FM sector sees M&A transactions continue at pace

Published 15th August, 2013 by Neil Nixon

UK's FM sector sees M&A transactions continue at pace

The UK's facilities management sector has seen merger and acquisition (M&A) activity continue on a strong footing in the first quarter of 2013, according to analysis from business and financial advisers Grant Thornton UK LLP.

The firm's quarterly Insights Into Facilities Management identified a total of 27 publicly announced deals during the first three months of the year, representing the highest Q1 figure since 2008. Moreover, the volume of transactions in the first quarter of 2013 - just one less than the previous quarter's total - comes on the back of two successive strong quarters for dealflow and signals the most active nine-month period recorded since the first three quarters of 2008.

Dominated by activity at the smaller end of the market, the analysis also recognised a growing trend towards M&A involving international entities as buyers, as larger outfits look to combat difficult trading at home by focusing on higher growth markets abroad where the sector is less developed. The 12 months to the end of March 2013 saw a total of 19 deals involving international entities as buyers - the highest recorded in any 12-month period since before 2007.

A resurgence of activity in the 'soft' FM sectors was also evident in the analysis, as companies continue to diversify in order to strengthen their offerings in vertical sectors and provide a holistic suite of services through new revenue streams.

Private equity (PE) interest in the FM market continued its decline, reflecting ongoing lending constraints for financial buyers and supporting cash-rich trade plays. The 12 months to the end of March 2013 saw just nine PE-backed deals compared with 25 such deals in the same period of 2007/08.

David Ascott, corporate finance partner at Grant Thornton UK LLP, said: "Certainly, two of the more visible growth-oriented trends within the sector over the past few quarters have been the moves by some FM companies to build scale in new verticals and international expansion - these themes will likely continue to drive a good flow of domestic M&A moving forward."

Grant Thornton's Quoted FM Tracker, which follows 16 publically traded UK FM companies, also noted strong overall performance in the first quarter of the year, with average share prices over the period rising by 8.6%.
Ascott continued: "The FM sector in the UK is very much getting back on the offensive, having adopted leaner and more efficient operating models over the past few years to protect against the sharp deterioration in the trading environment. It's encouraging to see this momentum, but as with any sector, avoiding complacency is key to performance - FM outfits hungry for growth are finding new revenue streams to fuel their pipelines, whilst those resting on their laurels may find themselves 'high and dry' sooner than they thought possible."

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