25 February 2010
by Graeme Davies
The takeover merry-go-round that often characterises the early stages of recovery from economic downturns, as stronger players try to pick off weakened competitors and build market share ahead of the upturn, appears to be well and truly underway. There has been significant recent action in the support services and facilities management sectors as companies look to diversify ahead of an uncertain period with public sector spending set to plummet but outsourcing likely to rise sharply.
Before Christmas waste specialist Shanks said it had been approached by private equity with a view to a 135p a share bid but was holding out for 150p with the support of its main shareholders. This was followed up when maintenance and repairs to domiciliary care provider Mears moved to buy homecare services provider Supporta.
And the pace has stepped up with a three-way tug of war emerging between facilities and support services business Mouchel, which is being targeted by shipbuilder turned facilities management specialist VT Group which is, in turn, being stalked by infrastructure, defence and nuclear services provider Babcock International.
Indeed Babcock acted quickly when VT made an improved offer for Mouchel two months after first being rebuffed by the company. Mouchel has even renegotiated some debt covenants in a bid to fund its defence such is its management’s determination to remain independent. The improved bid came in at around 294p a share, in a mixture of VT shares and cash, still a little short of the 300p that vocal Mouchel shareholder Andy Brough of Schroders demanded following the first VT offer.
But, with hours of this being made public, Babcock waded into the situation to offer up to 633.9p a share for VT, a healthy 25 per cent premium to its share price in the lead up to the offer being announced. Babcock trotted out the usual arguments in favour of its offer including cost savings and the benefits of a more substantial global footprint for the combined business but also laid down subtle warnings that it may revise the terms of its offer should VT formalise its bid for Mouchel. VT’s board, as is typical in the early stages of any unsolicited bid, has rejected Babcock’s first and second offers. Where this leaves Mouchel is a little unclear. Certainly its management may well get its wish to remain independent if Babcock can persuade VT’s management to accept their offer, but its shares, inflated as they have been by takeover speculation, may suffer in the short term.
What is certain is that this situation is likely to run and run. And it could be the beginning of a period of mergers and acquisitions activity in the sector as uncertainty tempts well capitalised businesses to bulk up. We are also likely to see a continuation of deals such as Capita Symonds’ acquisition of Inventures as larger players look to fill in gaps in their offerings by buying smaller specialists. What appears certain is that with the end markets many of these companies serve in a state of flux, the sector is likely to find itself in a corresponding state of flux for some time to come.
Graeme Davies writes for Investors Chronicle
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