The Facilities Services sector is growing rapidly, with a global market size expected to reach $49.6 billion by 2028[i]. This growth is being driven by the increasing complexity of buildings and infrastructure, the rising demand for sustainability, and the growing trend towards outsourcing. These growth drivers combined with a desire by customers for a single point of contact, more streamlined operations, a greater suite of service offering, and cost efficiency is resulting in a shift towards the use of services providers that offer a comprehensive and integrated set of facilities services.

Source: Grant Thornton Facilities management review Q4 2022

 Private Equity Investment Driving Consolidation

The recent dislocation in the broader M&A market over the last 12-18 months has, in our view, contributed to driving private equity firms to focus primarily on bolt-on transactions to increase their scale. Not only are they looking to grow the size of their companies, but to also expand the service offering and geographical reach of their existing platforms.[ii]

Private equity firms owning portfolio companies in the Facilities Services sector, have driven a significant portion of deal volume and are focusing on bolt-on transactions because there is less reliance on the financing markets to complete transactions and they may find valuation levels attractive.[iii] Illustrating this point, so far in 2023, Gryphon Investors’ portfolio company, Right Time Group, a Canadian home services provider, has acquired four facilities services companies, Knight Plumbing Heating and Air Conditioning, Shines Energy Incorporated, Thomson Industries Ltd and Oosterveld Heating and Air Conditioning.[iv]

 

Source: Grant Thornton Facilities management review Q4 2022

Given the large number of existing private equity backed portfolio companies, we expect a significant number of PE exits in the coming years as the M&A market normalizes. In the meantime, it is likely that they will continue to focus on growing the existing services they provide to their customers and expanding their geographical footprint.

The expansion of service offerings and geographies served by companies in the Facilities Services sector can enable them to be more competitive because their customers can increasingly be serviced by a single provider. It can also make communication and coordination simpler and more efficient through a single point of contact that better understands the customers’ desires, requirements, and goals. The economies of scale can result in not only more efficient service for the customer, but reduced costs as well.

Customers have increasingly looked for facilities services providers who can help them reduce their environmental impact and achieve their sustainability goals. This can lead to a growing demand for services such as green building design and certification, waste management, energy efficiency and conservation, renewable energy solutions, and other green initiatives. Demonstrating this trend, ABM, one of the world’s largest providers of facility services and solutions, has recently acquired companies in solar energy, waste & water management[v], most recently acquiring RavenVolt, a provider of advanced turn-key microgrid systems utilized by commercial and industrial companies.

Technology propelling Facilities Services into the future

Technology has already impacted the Facilities Services sector in many ways, including how industry players service their customers. Customers can increasingly select vendors that best utilize technology to not only provide better service but also cut down on cost. We expect technology will continue to influence the facilities services landscape through:

  • Predictive maintenance programs that can help to reduce downtime and costs by preemptively predicting when maintenance is required.
  • Data driven decisions in energy management based on the monitoring of HVAC systems to track consumption levels and identifying opportunities for cost savings, complying with regulations, and meeting sustainability goals
  • Integrated surveillance, access control, asset tracking and inventory management systems that enhance security and safety
  • Mobile applications that promote ease of communication, responsiveness and in some instances dynamic scheduling

Skilled worker shortages and remote working incite change

One of the biggest challenges facing facilities services companies is the shortage of skilled workers. The tight labor market has made it difficult for facilities services providers to find the employees they need to meet demand. Impacts of this include increased labor costs, high turnover, skill gaps, and a risk of service quality degradation. In order to combat these issues, many industry participants have increased pay, training and other employee retention initiatives.

Another challenge facing the industry is the shift to remote work, which was expedited by the pandemic. With fewer people in the office, demand for certain services is likely to reduce. Janitorial services, for example, might be limited to a few days per week when they were traditionally provided daily. More flexible service contracts allowing adjustments based on changing needs is the likely trend going forward.  

These challenges facing the industry, coupled with the consolidation trend make it difficult for local single service providers to compete with larger multi-service national or international players. Local players tend to operate at a higher cost than those players because they lack the operational efficiencies the larger competitors enjoy. Multi-service providers that offer a wider range of services and geographies to their customers as a “one-stop” solution under a well-known brand make it difficult for local providers to compete. In many cases, lack of financial stability and resources of local players make local, single-service industry participants more susceptible to the risks of a tight labor market and a decrease in demand due to remote working. We believe these trends will continue to drive future consolidation and deal flow in the Facilities Sector.

To discuss any of the themes in this piece further, get in touch with John Lanza here >


About DC Advisory

DC Advisory is an international investment bank committed to making a difference. As part of an established global business, we offer access to 700 professionals in 23 locations throughout Asia, Europe and the US. Across 11 industry focused teams, we offer tailored, independent advice on M&A, debt raisings and restructurings, private capital and access to unrivalled Asia investment knowledge. For more information, visit http://www.dcadvisory.com/aboutus >

References

[i] https://www.bloomberg.com/press-releases/2023-09-14/facility-management-market-worth-94-8-billion-by-2028-exclusive-report-by-marketsandmarkets

[ii] https://www.grantthornton.co.uk/insights/facilities-management-review-h1-2023/

[iii] https://www.grantthornton.co.uk/insights/facilities-management-review-h1-2023/

[iv] https://www.gryphon-inv.com/gryphon-news-2023/

[v] https://tracxn.com/d/acquisitions/acquisitions-by-abm/__2pDszr9Is8IXP_izuuygk0SMMeTqJVUjnqtwLdNz0gc