12 December 2016 | Graeme Davies
A number of factors have coalesced over recent years to drive mergers and acquisitions in the sector, and despite a brief hiatus around the EU referendum, there is little sense that the general momentum is stalling.
A low-growth economy coupled with a low cost of borrowing has increasingly prompted companies to seek growth through acquisition.
We have seen mergers and acquisitions driven by larger firms snapping up expertise in smaller companies and by mid-market companies looking to consolidate their positions and grow through acquisition. And this has, in turn, been driven by a trend towards bigger contracts and strategic partnerships whereby suppliers are becoming more deeply embedded within clients and offering more services under one agreement. Mid-market players also need the scale to stay competitive as wages costs rise, and other players have had to branch out into new areas with private sector clients as public sector growth remains relatively thin.
A prime example of a firm driving its presence in a sector is Servest, which recently bought Catering Academy. This helped push its catering services business turnover to about £100 million, from a standing start in 2013, and management plans to double this through both organic growth and acquisitions.
Statistics from accountants BDO show that there were 278 transactions in the FM sector between the start of 2014 and March 2016 with a steady upward growth in the number of transactions each quarter during that period and hard FM services accounting for around three-quarters of all deals. The ebb and flow of business growth cycles is also illustrated by the fact that around one-fifth of deals in 2015 were management buyouts, often prompted as companies slim down or withdraw from certain sectors.
But the wider trend is of companies looking to bulk up to protect and grow market positions as end markets get more complex and competitive. Despite the hiatus around the referendum, the ensuing steady economic picture and a nod to potentially increased government spending in the UK as well as a weak pound has added an extra dimension in the form of foreign buyers looking to grab a piece of the action. But history warns us that growth by acquisition alone can often come unstuck.
Graeme Davies writes for Investors Chronicle