Margin squeeze likely to drive Facilities Management M&A
New research by Catalyst predicts an increase in M&A activity in the Facilities Management (FM) sector as providers increasingly seek to protect profit margins through acquisition. This is set in context against the £5.4 billion of deal value generated in the sector between 2007 and 2009 which is analysed by Catalyst in the report.
In particular, the research highlights the weakening in both revenue and profit growth of the key players in the sector since the market peak of 2007, with annual EBIT growth rates contracting from a record high of 45% in 2007 to under 10% in 2009. "Our research shows that many FMs anticipate further pressure on margins in 2010 and throughout the next contract cycle too", commented Richard Holden, FM sector specialist at Catalyst and author of the report.
In response to this pressure, facility managers have been looking to acquire more technical and specialist service providers in the sector to strengthen margins, increase scale and extract operational synergies. MITIE Group’s £130 million acquisition of Dalkia Energy & Technical Services last August was seen to set this trend, merging more technical FM with traditional services. In this case the acquirer emphasised the savings expected from synergies.
The report outlines an expectation that between 5% and 10% of the transaction value will translate into annual savings, protecting future profit margins.
Another of Catalyst’s predictions is that there will be increasing consolidation amongst the mid-sized FM providers, driven by a need to gain critical mass. Smaller contractors, generally with revenues less than £100 million, are finding it hard to grow organically due to increased competition for places on framework contracts and large volume tenders, and are now seeking to develop scale through acquisition.
The report also suggests that more acquisition opportunities will become available on the supply side. “We expect to see more disposals of subsidiaries of over-geared parents and the carving-out of FM operations from large property managers such as utilities and housing associations”, says Holden.
Other key findings in the report include:
There were 257 deals completed in the FM sector 2007 to 2009, with a total disclosed value of £5.4 billion.
Public sector specialists will become acquisition targets for companies looking to access the growth in public sector outsourcing;
Private equity investors continue to favour the buy-and-build model within the FM sector;
Some of the large integrated players will continue to seek to acquire more differentiated services;
Competition for energy and carbon management service companies will accelerate and FM providers will compete with utilities and private equity firms to acquire the best businesses.
