Issue 1 of quarterly facilities management update covering key sector activity, review of 2011 and challenges and opportunities in 2012

1. FM
ISSUE 1 • 2012
Insights into
facilities management
Facilities management: change
continues to bring opportunity
At a time when the fortunes of the global in the sector have fallen steadily from the
economy seem to change on an almost pre-crash levels, but this is to be expected as
daily basis, making sense of trends and market participants seek to buy up smaller
developments is difficult for businesses in rivals as a way to build scale in the more
all sectors. But, as is so often the case, with commoditised areas or to acquire new
change comes opportunity, and we feel that capabilities in niche areas. While it is difficult
this is especially true of the UK’s facilities to see the downward trend of M&A values
management (FM) sector. It is a hugely in the sector lasting that long, there’s every
important sector for the British economy, chance that the growth in deal numbers will
covering a broad cross section of our continue as new opportunities are created by
industrial base. Its representatives range from the unique conditions we are experiencing.
David Ascott
the heavily people-based cleaning, catering Grant Thornton covers the FM sector
Partner, Corporate Finance
and security businesses, to firms that offer via its Business Support Services team and
Grant Thornton UK LLP
services involving a high degree of technical, we are delighted to launch a new series of
mechanical and engineering skills. quarterly snapshots, which will comprise
FM has historically been one of the higher statistical updates, covering both public
growth sectors in the British economic and private markets, as well as topical
landscape, thanks to the long-term trend overviews and comment from senior sector
towards outsourcing in both the public and experts. Our intention is to keep abreast of
private sectors. However, in the aftermath interesting trends, themes and developments
of the global financial meltdown, the market in the sector as it navigates a route
dynamics for many FM businesses in the UK through the changing landscape of the UK
have changed dramatically, driven on one side economy. With its balance of challenges and
by radical shifts in public sector procurement opportunities, we feel that the current market
and on the other by the deterioration in the represents a fascinating time for the UK’s FM
UK’s financing environment. sector and we look forward to charting the
Yet after the entirely understandable drop key developments in the area over the
in M&A activity during the depth of the coming quarters.
post crash recession, the UK FM sector has
returned successive years of volume growth
in both 2010 and 2011, underlining the
presence of interesting opportunities as the • 2011 M&A overview
sector gets to grips with a rapidly evolving
landscape. True, the value of M&A deals • Quoted FM tracker

2. FM
2011 M&A overview
Resilience to poor conditions drives
up deal numbers…
Top 10 Facilities Management deals in 2011*
Acquiror
Carillion plc
Compass Group plc
Target
Eaga plc
VSG Group Limited
Sub-Sector
Utilities
Security
Deal Value
£ million
306.5
64
commoditised areas (cleaning, catering
and security guard services, etc), the
push to consolidate is driven by a
need to protect flagging margins via
Right Document Solutions Holdings
the pursuit of scale. For other larger
The Capita Group plc Other Hard FM 40
Limited multi-line operators, it is about bolting
Securitas AB Chubb Security Personnel Limited Security 31 on higher margin niche capabilities in
British Gas Community Energy PH Jones Group Limited M&E 30 order to offer their embattled clients
May Gurney Integrated Services plc Turriff Group Limited Utilities 23 even more comprehensive bundles of
Costain Group plc Promanex Group Holdings Limited Other Hard FM 18.8 services while driving up – or at least
Balfour Beatty Workplace Limited Power Efficiency Limited Other Hard FM 18 maintaining – net margins.
G4S Managed Services (UK) Limited The Cotswold Group Limited Security 10.2
Clearly, another side effect of
Management Buy Out team - UK Facilities Service Group Limited Maintenance/Fit-out 9
the current economic conditions
Source: Zephyr *by disclosed deal value and involving a UK company
that is creating opportunities for
consolidation, is distress. Although
Right across the wider M&A markets the first time the annual total had made
this can come about through more
in the UK, Q4 figures for 2011 were it to three figures since 2008.
fundamental issues such as overly
well down on the previous three Ironically, it is the adverse conditions
leveraged balance sheets, distress
quarters on the back of Eurozone of the last few years generally that
can also be created by factors over
gloom and poor economic forecasts. has created this platform for growth
which businesses have little control –
But, while deal activity in the FM sector in the FM sector. In specific terms,
especially in the private sector:
did also slip back, its fall was nowhere the effect the downturn has had on
attrition in FM company client bases
near as pronounced as the conditions facilities procurement patterns in both
caused by increasing numbers of
might dictate. So, adding to the three the public and the private sectors has
insolvencies is one example and is a
solid quarters of activity before it, the continually proved to be an important
serious issue. However, in either case
Q4 figures helped to drive the market driver of consolidation within a
the distress caused can open up M&A
into growth territory for the second historically fragmented space. For
opportunities for the reasons already
year in succession. In all, 101 M&A some businesses, especially smaller
covered or simply to benefit from
transactions were recorded in the sector, outfits in the lower margin, more
cost-out synergies.
UK Facilities Management transactions 2008-2011 Finally, the downturn has also
forced many businesses to find creative
120 Volume Value £m 1400
solutions to their revenue problems and
100 1200 one such solution has seen large FM
1000 businesses moving into new subsectors
80
via acquisition in order to access their
800
60 targets’ client bases. During the year the
600 catering giant Compass group acquired
40
400 Integrated Cleaning Management Ltd,
20 while French group Sodexo acquired
200
the asset management division of civil
0 0
2008 2009 2010 2011 engineer WS Atkins.
Source: Zephyr

3. … but values fall
UK Facilities Management transactions 2008-2011 by quarter**
45 Volume Value £m 900
40 800
35 700
30 600
25 500
20 400 In contrast, the average value of M&A
15 300 deals in the FM sector has virtually
10 200 halved in the four-year data set and
this has seen the total market value
5 100
drop to £656m in 2011 as a whole
0 0
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 – down almost 20% on 2010 and
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
nearly 50% on the values seen in
Source: Zephyr **see back page for Grant Thornton subsector split between hard and soft FM
2008. In part, this can be explained by
the persistent difficulties in the capital
markets, which is severely hampering
the ability of many (especially financial
bidders) to raise the necessary funding
to complete larger M&A transactions.
UK Facilities Management transactions 2008-2011 by acquiror type Meanwhile, without the sort of
headline-generating fire sales seen the
100% previous year with Rok and Connaught,
90% the large well-funded corporates have
80% clearly been holding fire on major
70% acquisitions, focusing instead on smaller
60% opportunities to bolt on new, niche
50% capabilities. Only one 2011 deal – the
40% acquisition of EAGA plc by Carillion –
30% had a reported value in excess of £100m.
20% It is also revealing that acquirers are
10% increasingly looking to come up with
0%
2008 2009 2010 2011
more creative methods of structuring
deals, which might reduce the upfront
UK PE International
funding element and therefore affect the
Source: Zephyr
overall market numbers: minority stake
deals, innovative earn-out structures
and vendor loan notes are becoming a
more common feature of the market.

4. FM
Subsector concentrations:
hard FM dominates
UK Facilities Management transactions 2008-2011 by subsector
100%
90%
80%
Other Hard FM
Utilities
M&E
Looking at the underlying patterns
of M&A activity within the FM
subsectors, the dominance of hard
FM remains a clear trend, accounting
70%
for approximately two thirds of
Maintenance/Fit-out
60% transactions completed in 2011.
Other Soft FM
50% One of the main drivers of this in
Security recent quarters has been a growing
40%
30%
Hygiene concentration of activity within the
20% Cleaning social housing space, which has had
10% Catering a knock-on effect on subsectors like
0% Maintenance/Fit-out and Mechanical
2008 2009 2010 2011
& Engineering (M&E). A number of
Source: Zephyr
important deals in this area boosted the
annual numbers including, the sale of
certain divisions of Kinetics Group to
UK Facilities Management transactions 2011 by subsector SCP Renewable Energy, the acquisition
of Linbrook Services by Wates Group
Other Hard FM and the sale of certain house building
11%
21% Utilities assets by troubled group Rok Ltd. On
9% M&E the M&E side, Centrica business BG
1% Maintenance/Fit-out Group acquired PH Jones Group Ltd, a
3%
12% Other Soft FM
central heating installation, maintenance
Security
and repair services company to the
20%
3%
social housing sector.
Hygiene
Cleaning
20%
Catering
Source: Zephyr

5. FM
Looking ahead: emerging trends
The hard FM space is likely to
maintain its dominance looking into
2012 and beyond too. There are
growing signs that large PFI contractors
away from internal servers, FM players
in the data services area will surely
attract more attention. Consultancy-
based FM businesses are also likely
uncomfortable for many in the FM
sector, the silver lining is that they are
likely to continue to create interesting
opportunities for those with an appetite
may increasingly be viewing the to generate increasing interest among for M&A activity. As Grant Thornton
maintenance elements of their business potential buyers, attracted by the higher Partner David Ascott concludes:
as non-core and this could potentially margins and high barriers to entry these “All the signs are that the market will
become an important market driver in businesses can offer. remain highly dynamic in 2012 and will
the hard FM space. Such operations, There is also evidence of further continue to offer up strong numbers of
should they continue to appear in M&A collaboration between the public and smaller deals and consolidation plays
markets, would be viewed by many private sectors, for example the recent as the main current drivers continue to
specialists as highly attractive assets. announcement of the partnership shape the FM landscape. The potential
Similarly, as was highlighted by Balfour between MITIE and the Prison Service for larger deals is also there, though,
Beatty’s acquisition of Kent-based in the bid for management of six especially if any of the private equity-
Power Efficiency Ltd, rising energy prisons. These partnerships enable backed buy and build platforms that
costs are driving the number of deals public and private sector organisations have developed significant scale are
involving energy efficiency businesses, to combine and take advantage of put up for sale, or if there are any high
both in terms of consultancies and their respective strengths to develop a profile failures like those we witnessed
developer/manufacturers. On the down compelling proposition. in 2010”.
side, though, the cut in solar feed tariffs Overall, while the difficult
may have a negative impact in the conditions are clearly making life
energy area.
Beyond the hard FM space, an area
that is attracting increasing interest is
the provision of data centre services. “All the signs are that the market will
remain highly dynamic in 2012”
As the use of cloud technology grows
and businesses look to move their data

6. FM
Quoted FM tracker
While the vast majority
of UK FM businesses
are smaller, privately
Thankfully for the FM sector, 2011
did not see a repeat of the events that
led to the collapse of two major listed
businesses during the previous year.
follows is an overview of this group,
taking into account size, profitability
and recent share price performance.
It is based on a snapshot taken at the
owned entities, many of Nevertheless, in order to help give a close of business on 31 December
meaningful overview of the general 2011. Over the coming quarters we
the most important and conditions being experienced by will continue to track the fortunes of
influential forces in the London-listed facilities management these important quoted FM businesses,
companies, we have created a 17-strong as well as looking into the threats and
space are listed. sample set of businesses that best opportunities that are defining their
represent the broad range of activities current strategies.
within the sector as a whole. What
Quoted FM tracker at 31 Dec 2011
Share price change to 31 Dec 2011
Market cap Sales EBITDA EBIT 3 months 6 months 1 year 2 years
Name £m £m £m £m % % % %
Compass Group PLC 11,607 15,833 1,339 1,073 17.3 1.7 5.2 37.2
G4S PLC 3,834 7,397 633.0 397.0 1.8 (2.9) 6.8 4.3
Serco Group PLC 2,357 4,327 324.3 241.3 (7.1) (14.2) (14.7) (10.6)
Balfour Beatty PLC 1,820 9,236 327.0 171.0 3.6 (14.2) (15.4) 2.4
Carillion PLC 1,294 4,237 175.3 111.9 (10.1) (20.0) (21.7) (1.0)
Rentokil Initial PLC 1,137 2,497 489.1 221.3 (12.6) (34.1) (35.3) (45.8)
MITIE Group PLC 875.7 1,891 128.0 99.3 3.9 2.1 3.8 5.7
Berendsen PLC 747.8 986.1 237.8 48.4 1.1 (20.1) (0.3) 8.9
Kier Group PLC 527.3 2,123 77.6 59.7 7.5 0.0 (0.9) 32.0
Interserve PLC 403.5 1,872 69.1 38.9 6.5 (0.6) 38.8 65.9
London Security PLC 221.6 85.5 22.6 19.3 3.3 23.6 80.8 125.9
May Gurney Integrated Services PLC 197.6 571.4 33.8 22.9 1.2 1.4 12.1 7.8
Mears Group PLC 188.4 523.9 34.9 21.2 (20.7) (21.7) (27.4) (21.1)
Johnson Service Group PLC 67.6 227.4 41.8 17.7 (12.0) (21.7) (14.1) 15.8
Interior Services Group PLC 54.3 1,196 14.5 10.4 (5.8) (19.2) (13.6) (1.5)
Green Compliance PLC 12.0 18.2 1.5 -0.8 (45.5) (49.2) (59.4) (73.6)
Mouchel Group PLC 6.1 539.6 81.7 64.3 (84.3) (91.0) (94.9) (98.0)
FTSE 100 8.7 (6.3) (5.6) 2.9
FTSE All Share Support Services 7.2 (7.6) (2.9) 16.9
Source: Factset; Datastream. Market data as at 31 Dec 2011; Financial data as at last announced financial close

7. Market cap end of 2011. Among the larger groups 100 did not perform so well, though:
Although the majority of companies to outperform the FTSE 100 index are G4S’ share price did show limited
selected would fall into the mid- and Compass and G4S, with PE ratios of growth in most of the time periods,
12.8x and 13.5x respectively, while mid but its performance will have been
small-cap brackets of the FTSE,
cap businesses Berensden and Kier seriously hampered by the group’s
reflecting the main driving force
Group also performed strongly (12.2x bid to create one of the world’s largest
behind the sector as a whole, there is a
and 15.7x respectively). companies through the acquisition of
wide disparity in terms of market cap
ISS from its private equity backers,
between them. At the top end, three
of the current list - Compass Group, Share performance which failed late in 2011 following
opposition from shareholders. Serco,
G4S and Serco Group - sit within the Analysing the share price performance
meanwhile, has seen its share price drift
FTSE 100 list, with market caps of of the sample reveals some positive
steadily lower since reaching a peak
approximately £11.6bn, £3.8bn and trends for the FM sector. After an
in spring of 2010, despite putting in a
£2.4bn respectively. At the other end understandably rocky period over the
performance described as strong in the
of the size range, four businesses have last year, when 11 of the companies
light of market headwinds. The most
a market cap of well below £100m. In in the list saw significant falls in their
impressive showings among the sample,
gross sales terms, the sample ranges share price (on average by around
however, came from mid-market groups
from nearly £16bn (Compass) down 25%), the final quarter of 2011 showed
London Security PLC and Interserve
to £18m, with an average of £3.2bn some signs of improvement. Only three PLC, whose share prices have grown
(£1.5bn if the top three are excluded). of the top 12 companies by market by 126% and 66% respectively over the
cap saw any falls in their share prices two-year period.
Earnings comparisons between October and the end of 2011,
Across the board, the 17 businesses in compared with seven of the top 12 in
the sample generated positive EBITDA the six-month snapshot and six in the Overall, this picture
one-year period. Nevertheless, against
figures in the last trading period, and
both the FTSE 100 and the support
reveals the strength
were valued at an average EV/EBITDA
ratio of 6.4x. However, it is interesting services indices, the FM businesses are of the major players
to note that the larger groups – those lagging some way behind in most time through their diversity,
with a market cap of £1bn or more periods.
international reach and
- generally outperform this, with an In terms of individual FM company
average EV/EBITDA of 7.7x. performances, Compass Group, growth opportunities and
In PE ratio terms, the performance returned very solid figures in the two- delivery of resilient financial
of the 16 businesses in the sample year period, rising from around 450p performance. The small
where a figure is known compares per share at the beginning of 2010 to
over 610p at the end of December 2011,
to medium companies,
favourably with the FTSE 100 average,
with an overall PE average of 10.2x just equating to a 37% rise. Compass made demonstrate opportunities
eclipsing the FTSE 100 (10.1x). They four UK acquisitions within the FM to out-perform but also
do, however, fall some way behind sector during 2011, buying Integrated give examples of a sector
the average price earnings ratio among Cleaning Management, Cygnet Foods,
FTSE All Share Support Services PPP Infrastructure Management and
suffering from further debt
businesses, which stood at 16.3x at the VSG Group. Its FM peers in the FTSE related problems.

8. FM Contacts
For any further information, please contact:
David Ascott Pete Dawson Martin Gardner
T 020 7728 2315 T 020 7728 3197 T 020 7728 2847
E david.p.ascott@uk.gt.com E peter.dawson@uk.gt.com E martin.n.gardner@uk.gt.com
Grant Thornton Facilities Management - subsector map
Hard FM Soft FM
Fabric maintenance Security
Fit-out Cleaning
Mechanical & Engineering Catering
Fire Protection Washroom hygiene
Grounds Maintenance Textile / Laundry
Utility Maintenance Pest Control
Reprographics Space planning
Relocation & Storage
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