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Support services sector thrives on growing M&A activity

The UK support services sector has witnessed an unrelenting volume of M&A transactions since the end of 2008 despite limited activity in most other sectors, according to research by Close Brothers Corporate Finance.

Since October 2008, at the start of the international banking crisis, the UK support services sector has seen 131 M&A transactions, with a cumulative value of over GBP8bn.

This level of M&A activity is set to continue as corporates remain active and private equity firms boost their interest and confidence in the sector, according to Close Brothers Corporate Finance.

The findings show that the strategic rationale for executing transactions has remained strong, with corporates accounting for the majority of deal flow in the sector over the period – 105 deals valued at approximately GBP4bn.

Corporates have mostly focused on assets which have added geographic diversification, capability or an enhanced business proposition; examples include Balfour Beatty’s acquisition of Parsons Brinckerhoff for USD626m and Mitie’s acquisition of Dalkia for GBP120m.

Private equity has remained quiet for much of the period but has recently roared back into life, completing much larger deals. Since October 2008, private equity has completed only a quarter as many deals (26) compared to corporates (105) but spent roughly the same amount (GBP4bn). Notably, over half of these private equity deals, by value, have been announced since November 2009.

In some instances private equity groups have moved quickly to secure assets. An example is Apax’s GBP975m buyout of Marken, a logistics and support services company to the biopharmaceutical industry, which was acquired on all-cash basis and subsequently refinanced.

Private equity’s resurgence is a reflection of increased confidence in the sector, combined with greater access to capital which is reflected in the average transaction value in 2010 to date, which is more than ten times higher (GBP198m) than Q4 2008 (GBP19m).

Will Thompson, managing director of the CBCF support services sector team, says: “The support services sector is well positioned to benefit from the continued recovery of confidence in the economy. Furthermore, the requirement of corporates, central and local government to continue to outsource and cut costs remains paramount.”

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