Facilities management and property services M&A insight report
UK facilities management continues to be a desirable target for M&A
- Q4 2024 strongest quarter for facilities management deals since Q1 2021.
- Deal volumes remained consistent year on year, despite a broader challenging M&A environment.
- Private equity overtaking trade buyers in volume of M&A activity, with 54% of deals backed by private equity in 2024, up from 36% in 2022.
- Fire, security and cleaning services remain attractive to investors, with 58% of deals involving a business offering at least one of these services in the last four years.
Introduction
In recent years, Facilities Management (FM) in the UK has remained a desirable sector for both private equity (PE) and corporate investment.The sector has demonstrated its resilience during periods of uncertainty and upheaval which have negatively impacted the performance, and therefore attractiveness, of other sectors. This largely stems from the regulatory and compliance requirements driving many verticals within the sector.
Combining stable contracts providing regular, predictable revenues and the ability to scale a business relatively quickly, FM businesses are an attractive investment for PE and corporates alike.
The sector’s success is demonstrated by the share price performance of listed FM businesses which, overall, track above the average of the FTSE 250 and FTSE All Share.
Strong and steady deal volumes
Whilst the sector is impacted by issues affecting many other UK industries, such as persistent inflation and recruitment issues, the opportunities have led to sustainable deal volumes. Our review of a large sample of M&A deals between January 2021 and December 2024 shows stable deal volumes in the sector against a backdrop of a challenging M&A environment since 2022. According to our research, the number of deals completing in Q4 2024 was the highest quarterly number since Q1 2021, demonstrating the consistent appetite for UK FM businesses.
M&A key trends
Resilient deal volumes
Total deal numbers have remained resilient despite the impact of various macroeconomic factors on the wider M&A landscape, particularly higher levels of inflation and interest rates in recent years. 2024 saw the highest number of deals announced in the last four years, with a rise of 6% on 2023.
Increasing appetite for specialist services
Fire systems installation and maintenance, security services and cleaning services were in particularly high demand. Companies offering one or more of these services made up 58% of all deals across the review period.
Whilst companies offering security services remain a significant proportion of all deals completing, on average 17%, the proportion of deals involving security services has fallen year on year from a high of 21% of all deals in 2021 to 12% in 2024.
There remains demonstrable appetite for companies offering these services with the actual number of deals being broadly stable since 2021. However, sellers may need to consider the best way to position their business in order to offer a compelling proposition to buyers, such as specialising in a particular subsector or demonstrating valuable expertise.
100+
deals per year
58% fire, security or cleaning
Conversely, other services are proving increasingly popular. Companies offering HVAC, access, mechanical and electrical or energy services saw an increase in the number of deals in 2024. Transactions where the target company offered energy services increased by 67%, 9 deals in 2021 rising to 15 in 2024. This may well be reflecting the increasing need for businesses to manage their carbon footprint and energy requirements effectively to remain compliant and competitive.
Shift from corporate acquirers to PE
Over the last four years, corporate acquirers have accounted for half of all deals in the sector. However, PE has been increasingly active in this sector, accounting for 54% of transactions in 2024 compared with 36% in 2022.
This compares favourably with c. 42% of PE participation in overall M&A activity in 2023. Many PE funds have substantial dry powder still to deploy, enabling them to make compelling offers which can compete with corporate acquirers.
Continued consolidation
The FM industry has always been highly fragmented, with a large number of small businesses. Consolidation has been a key theme within the industry and PE has contributed to this, with buy-and-build strategies making up a significant proportion of overall activity. Bolt-on acquisitions to PE portfolio companies accounted for some 36% of all deals completing since January 2021.
A key strength of the FM industry is the ability to combine specialisms and increase the value proposition to clients through offering a one-stop shop service. This increases client retention and provides greater stability for the business. Interestingly, our review of recent deals shows that acquisitions of businesses offering a combined service fell in 2022 and 2023. 53% of deals related to companies offering more than one service in 2021, compared with just 40% in 2023. This trend appeared to reverse in 2024 with 48% of transactions involving targets with a combination of services.
We analysed the number of distinct services provided by target companies and found that in 2024 the average number of services offered was 2.1. This was a 20% increase from 2022 and 2023 where the average was 1.8. This implies that the more desirable targets in 2024 provided a range of services to clients, thereby enabling the purchaser to expand their service offering more quickly than by acquiring businesses which specialised in Deals by acquirer % of all deals where the target offered more than one service.
This was not the case for bolt-on acquisitions to a PE back business. The majority of these acquisitions, 60% in 2024, were for specific services to broaden the offering of the platform investment company.
“Although there is a degree of uncertainty and pessimism in the economy following the 2024 Autumn statement tax rises, forecasters are nonetheless predicting positivity in all sectors of real estate across 2025-2027. Most asset classes are expected to see a return to positive net absorption rates and reduced vacancy rates, leading to a healthy occupier market. That boards well for FM businesses whose services will be ever more in demand. Additionally, the general flight to quality should bring an added boost since higher end real estate often encompasses elements that need additional FM services.”
Guy Richardson-Pancrazi, Head of Real Estate and Construction at Moore Kingston Smith
Spotlight on PE investment in FM
- The most common services to add to an existing portfolio business in 2024 were fire systems, security, mechanical & electrical services, maintenance, and waste management services.
- Between 2021 and 2024, fire and security services were popular verticals for both corporate acquirers and PE. However PE firms invested in more businesses which offered fire services than corporate acquirers (75 deals compared to 52 deals respectively). Conversely, security services featured in more corporate acquisitions than PE backed deals, with 84 versus 60.
- 64% of all PE deals were for entities providing one or more of fire, security, HVAC, M&E and maintenance services. However, the trend appears to shift in 2024 with a much greater spread of transactions across FM services with a lower concentration of PE deals in security, fire and HVAC than in previous years.
- 81% of PE transactions were bolt-on acquisitions to an existing portfolio company over the last four years. In 2024, this was 86% of PE deals and had increased from 72% in 2021. This suggests that PE firms have been increasingly focused on growing their existing investments through further acquisitions, adding relevant and complimentary services whilst waiting for the right platform investments.
- Given the cycle of PE investment funds, we expect there to be PE-backed businesses coming to market in the next couple of years, as the exiting firms look to realise their investment.
54% PE deals in 2024
81% of PE deals were bolt-ons
Outlook for M&A in 2025
ESG
We expect there to be continued appetite for FM businesses from both PE and trade acquirers. PE continues to have large funds to deploy so profitable, well-managed businesses can expect competitive valuations from PE investors, particularly where a buy-and-build strategy can be pursued. Consolidation through M&A should continue and expected reductions in interest rates in 2025 could help acquirers to fund a higher volume of acquisitions.
Businesses offering their clients data insight, services critical to ESG or net zero strategies, or responding to a regulatory or compliance requirement are likely to achieve higher valuations and continue to receive high levels of interest from both strategic and financial investors.
A funding gap between buyer and seller value expectations is likely to remain, due to reduced leverage available to buyers. In this environment, professional advice is important for sellers looking to maximise value at exit and navigate a sale process through to successful completion.
Budget impact
The new Labour government plans to increase the numbers of social housing being built, which may offer further opportunities for FM businesses to offer critical services to housing associations.
Likewise, additional investment announced in the Budget for investment in the NHS and schools as well as decarbonisation funding could lead to more demand for FM and related services in the public sector.
The Budget also saw a number of other announcements which will impact many FM businesses. The combination of increases to the minimum wage from April 2025, changes to working conditions, and a significant increase in Employers National Insurance Contribution due to reduced thresholds and an increased tax rate (15% on employee salaries above £5,000) will put pressure on many businesses to maintain their margins. This will be particularly challenging for those business on multiyear contracts which could limit the ability to pass on increased costs. As a result, management and business owners will need to manage both costs and customers carefully so that the inherent value of the business does not suffer as a result of declining profitability.
Capital gains tax
In the lead up to the Budget there was a large amount of speculation as to how Capital Gain Tax (CGT) rates would change. The new rates announced in the Budget of 18%, up from 10%, for basic rate tax payers, and 24%, up from 20%, for higher rate tax payers are not as high as some had speculated but apply to any gains from the date of the Budget. In addition, from 6 April 2025, the rate applying to gains within the lifetime limit for Business Asset Disposal Relief, is increasing to 14% from 10%. A further increase to 18% follows for disposals on or after 6 April 2026. These changes will increase the amount of CGT payable on the sale of a business in the future. This may make an EOT a more desirable option for business owners looking to exit, providing the EOT can meet the new stricter rules governing this type of ownership.
Inheritance tax
Finally, business owners who were planning to leave their family businesses to the next generation need to be aware of changes in the Business Property Relief rules for Inheritance Tax. Previously tax free transfers could now be subject to an inheritance tax levy of 20% on estate transfers, meaning succession and exit planning are now more important than ever.
Employee ownership trusts
Employee ownership trusts (EOTs) have not historically been the sale route of choice for FM shareholders. However, we have seen in our data that a small number of EOTs have completed over 2023 and 2024, compared with none in 2021 and 2022.
EOTs can be attractive for FM business owners, who sell their shares to a trust which holds the shares on behalf of the employees. Providing the criteria are reached, the proceeds from the sale are free of capital gains tax (CGT) for the sellers. The structure of the sale can be uniquely tailored to the business and the needs of the sellers.
The rules regarding these transactions are complex and became more stringent in the latest Budget. It is critical to consult a specialist adviser to ensure a sale does not fall foul of the regulations. Our tax experts, collaborating with our corporate finance specialists, would be happy to have an initial conversation about your plans and whether an EOT can work for you.
Moore Kingston Smith Corporate Finance – how can we help?
Our team thoroughly understand owner-managed businesses and can help you assess your options and establish a strategy to achieve your ambitions: whether a business sale, a management buy-out, acquiring another business or raising funding for further growth.
By understanding your personal ambitions and your aspirations for your business, our team works with you through all stages of a transaction to achieve a successful outcome.
If you have had an approach already, get in touch with us today. We can assist throughout the process, advising on how you can maximise value from the opportunity.
Our expert team would be happy to have no-obligation initial discussion regarding your plans for you and your business.
Methodology
In compiling our deal tracker we use Pitchbook, an international financial data provider that gives access to comprehensive data on the private and public markets. Moore Kingston Smith has analysed completed transactions, excluding debt and IPO transactions, by UK based facility management and property services companies from 1 January 2021 to 31 December 2024 to identify the trends in this report. This research aims to capture all transactions by UK companies that fall within the facility management sector.
