Interserve’s £250 million acquisition of Initial Facilities was recently cleared by the Competition and Markets Authority, creating one of the largest firms in the facilities management sector. The move caps a frenetic few years for merger and acquisition activity in the industry. So what exactly has driven this trend and how likely is it to continue? Anticipated growth in demand is one factor influencing investment in the sector. Mintel’s Facilities Management UK 2014 report projects a bright future for the industry, with forecast growth of 16% in demand for total facilities management over the next five years. The level of international interest in UK facilities management businesses has also increased. Among the largest and most high profile acquirers over the past two years have been the French-based GDF SUEZ, South African group Servest, German firm Bilfinger and the US real estate business CBRE. This trend in itself reflects economic conditions in the UK that have worked against domestic buyers looking to expand. Finance has been difficult to secure and most operators have been looking inward to cut costs wherever possible. Meanwhile, established companies that struggled through the downturn have become targets for foreign buyers looking to get a foothold in the UK market. Will consolidation continue at the same pace and where can gains be made? While economic conditions are important in determining buyer activity, timing and taking advantage of circumstances play a part in acquisitive behaviour. As Rentokil Initial’s Chief Executive, Andy Ransom, noted on the disposal of its Initial Facilities business, “acquisitions tend to be opportunistic, with periods of feast and famine”. By the sheer weight of activity that has already taken place, it seems likely the market will cool in the coming months. Many companies have made strategic acquisitive moves and will now focus on integrating the new entities and ensuring the associated costs don’t thin already tight margins. A further factor limiting funds for investment, and influencing the direction of future acquisitions, is the spending cuts being undertaken by government. Targeted businesses are likely to have predominantly private sector client relationships. Where acquisitions are made, they are expected to focus on provision of ‘hard’ services, such as mechanical and electrical contracting. Hard facilities management services are those associated with the physical maintenance of a building or asset, such as work done to the electrics or fabric of a structure. Mintel forecasts mechanical and electrical contracting will grow faster than any other sector of the facilities management market, at 19% in real terms over the five years to 2018. With these services strongly linked to a construction industry gathering momentum, selective moves here are anticipated to generate the greatest gains for acquiring companies. If you’re in the business-to-business sector or simply want to understand these industries better, then Mintel Industrial & B2B Reports are essential reading. For more information on Mintel’s industrial report series, please click here. Ben joined Mintel in 2013, having previously worked in research for a global professional services business. Ben writes a range of reports covering the UK’s industrial and professional services markets, specialising in how economic, political and regulatory change impact the B2B sector. You might also be interested in: No related posts.