Deals in support services likely to surge
By Alistair Gray
Published: February 16 2010 01:13 | Last updated: February 16 2010 01:13
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Dealmaking in support services has fared much better throughout the recession than that in most other sectors and is likely to surge over the coming year, according to Close Brothers Corporate Finance.
It said that since October 2008, there had been 131 mergers and acquisitions in the sector with a total value of more than £8bn ($12.5bn).
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Although corporate activity has accounted for much of that, the study said private equity – quiet for most of the period – had recently “roared back into life” in the sector.
Support services, which encompasses a wide range of activities from waste management and cash transport to pest control and road maintenance, can be awkward to define.
Yet in spite of their diversity, support service companies share many characteristics – several of which, analysts say, make deals more likely.
Given the low barriers to entry in outsourcing activities such as cleaning, the markets in which they operate tend to be fragmented. As a result, larger groups have been active in mopping up small, family-run operations even as finance for larger deals remains tight.
“There are a lot of small deals going on in the sector beneath the undergrowth that don’t necessarily attract the headlines,” said Robert Morton, analyst at Investec.
Moreover, several support service companies have sought to diversify beyond their core operations as clients demand a wider range of services from a single provider – which can usually only be done via acquisitions.
A key feature of the sector are long-term contracts, which are of particular interest to private equity.
In one of the more high-profile examples, Carlyle Group, the US private equity house, made a £535m unsolicited takeover approach for Shanks, the waste management group.
Recent successful deals include Apax’s £975m buy-out of Marken, which provides logistics for the biopharmaceutical industry, and Bridgepoint’s agreement to buy LGC, the forensic research group, for £257m. The recent £120m acquisition of Dalkia by Mitie, the FTSE 250 facilities management group, expanded its presence in energy services.
Will Thompson, Managing Director of the CBCF support services sector team, said: “Since the start of 2010 the UK leverage finance market has significantly strengthened ... and is likely to lead to a further surge of transaction volumes and average deal sizes in 2010.”