Facilities management M&A review: Winter 2023

As global M&A volumes hit a decade low, UK facilities management (FM) continued to buck the trend. There were 168 deals in 2023, a 2.5% increase on 2022, itself a bumper year.

In a difficult economy, the sector remains a haven for private equity (PE), with plenty of opportunities for bolt-on acquisitions. This year we’ve also seen increased investor appetite for assets with a strong environmental and social governance (ESG) focus.

Deal volume

UK FM M&A - quarterly deal activity

_{Source: Grant Thornton proprietary facilities management M&A tracker}

2023 was a year of two halves, with H1 accounting for 60% of deal activity. January, in particular, saw the completion of several processes that had been put on ice following the market uncertainty created by the September 2022 mini-budget. After an exceptional first quarter, the activity reverted to average historical deal volumes.

Key 2023 facilities management deals

Pictet acquires a controlling interest in Pareto

In November 2023, Pictet acquired a controlling interest in Pareto, an ESG-driven provider of technical and facilities services. Their award-winning commitment to social inclusion generated a high-level of interest among potential investors.

We acted as lead sell-side adviser to the shareholders of the firm.

“Having been through previous PE processes, it was a breath of fresh air to work with Grant Thornton on this process. Their difference was they understood a complicated shareholder dynamic and got a fantastic deal which satisfied all stakeholders, whilst project managing an efficient process to minimise disruption to the business. Their understanding of the FM space is second to none and that was key in bringing out what Pareto’s secret sauce really is. ”
Dave Richards, CEO, Pareto

Churchill Group becomes an Employee Owned Trust (EOT)

In August 2023, we helped soft FM specialist Churchill Group become an EOT in a move that handed 53% of the business to staff.

Group CEO James Bradley said “when considering ways in which to take the company forward, we were impressed by the benefits becoming an employee-owned business would bring including furthering our sustainable purpose with better impacts for people and the environment.”

Arcus FM acquires Trios

In August 2023, Arcus FM, a full-service FM company backed by Soho Square Capital, acquired Trios Group.

Trios, like Arcus, has dedicated mobile engineering services and an in-house technology platform. The deal helps realise Arcus' ambition towards becoming the UK's largest provider of mobile FM services.

We provided Arcus with buy-side corporate finance, financial due diligence, and tax advisory services.

Freshstream invests in MCR Group

In May 2023, PE house Freshstream invested in MCR Group, which provides security, engineering, and personnel services in Ireland.

The investment enables MCR to accelerate its expansion plans organically and through acquisitions. 

We provided Freshstream with integrated buy-side advisory services, including M&A advisory, financial modelling, and financial, tax, and IT due diligence.

Private equity bolts-on

UK FM M&A - Deal activity by acquiror type

 _{Source: Grant Thornton proprietary facilities management M&A tracker} 

Deals involving a financial investor accounted for 46% of activity in 2023. These included a notable number of bolt-on acquisitions by PE-backed businesses.

Horizon-backed Churches Fire completed five bolt-on deals in 2023, including the acquisition of Arnage Electronic Security Limited in September.

In October 2023, EA-RS bought Bonnell's Electrical Contractors; this marks the twelfth acquisition in the Rockpool-backed group’s buy and build strategy

In Q4 2023, OCS Group acquired Profile Security (Grant Thornton advised) and Accuro FM (Grant Thornton advised), its first bolt-on deals under the ownership of Clayton, Dubilier & Rice.

Subsectors - hard FM remains the easy choice

UK FM M&A - Target sector split - % share of deal volumes

_{Source: Grant Thornton proprietary facilities management M&A tracker}

Hard FM accounted for over 70% of deal volumes in 2023.

Due to their technical nature, hard FM companies possess both higher and more resilient margins. For example, sector operators such as fire safety and HVAC companies, have found it easier to pass on cost inflation to customers than traditional cleaning and security companies.

The ESG trends driving deals

Recognising the S in ESG

Companies that have mastered the S (social) in ESG have two advantages. Firstly, they’re more attractive to employees amid an industry-wide talent shortage. Secondly, they have a competitive advantage in the increasing number of tenders with mandatory ESG criteria – our colleague Nigel Le Bas explains more.

Three examples involving our key deals show how FM is increasingly recognising the value of social and people-focused initiatives.

• Pareto, which puts social value at the heart of business, has grown from a startup to £50 million in revenue in just nine years
• Arcus FM opened a national training centre in 2023 to enable its staff to upskill and cross-skill; training benefits the business and reduces employee churn by enabling career progression
• Churchill Group's move to an EOT transformed its workforce from staff to employee-owners, which reflects a sector-wide recognition of people as valuable assets.

Solar heats up

The trend to net zero and sustainability continued to drive activity, with c.12% of deals involving building energy management or green energy solutions.

• In October 2023, Freshstream announced an investment in Project Better Energy (GT advised), a solar and renewable energy service provider; the company was founded to service the residential market but has since expanded to EV chargers, air-sourced hot water cylinders, and infrared heaters
• In September 2023, DCC-owned Certas acquired Centreco (GT advised), which installs solar panels on commercial rooftops

A comment from Freshstream Director Gilles Gradassi, on its acquisition of Project Better Energy, sums this up:

"Following a series of legislative and policy commitments by governments in recent months and years to mitigate the impact of global climate change, there’s never been a more important time to invest in solutions aimed at expanding clean power availability and energy efficiency."

The outlook for 2024

2023 was another stellar year for FM M&A, and it looks like the momentum will continue.

The fragmented UK market remains ripe for consolidation, and the fundamentals remain unchanged – strong reoccurring regulated revenues, government customers, and visibility on forward order books. In addition, increasing safety and ESG regulation will drive end-user demand.

Our expectation is that we will experience another strong year of M&A activity in the sector.

For more insight and guidance, get in touch with Usman Malik and Carl Parker.