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June 3, 2013 5:30 pm
New York-based buyout group Clayton Dubilier & Rice is exploring a combination of the office maintenance business units of Balfour Beatty and Rentokil Initial, in a move to create a larger, more profitable UK operator.
UK pest control and hygiene group Rentokil and CD&R are holding talks on the plan, four people with knowledge of the matter said. A transaction might value WorkPlace, the unit put up for sale by Balfour Beatty at about £200m, while Rentokil’s unit could be worth as much as £400m, the people said.
The discussions are at an early stage, one person said, while another cautioned that other private equity firms have tried such a combination in the past without succeeding, partly because of divergent valuations of each unit. “If they can get their act together, they have a strong chance of winning,” said one person familiar with the process.
Talk of a deal comes amid a drive towards consolidation in the facilities management industry as customers seek fewer suppliers to deliver a wider range of services.
Rentokil has been growing its facilities management arm – called Initial Facilities Services – through a series of acquisitions, and last year bought Modus FM from Modus Group for around £5m. The unit increased revenue from £581m in 2011 to £593m last year at constant exchange rates, and profit stood at £30m.
But the group, which employs 60,000 people in 60 countries, has said it is keen to concentrate on expanding the footprint of its pest control, hygiene services and workwear operations. Rentokil is willing to sell IFS because it is low margin and only operates in the UK, unlike most of its other businesses. In April, it offloaded its lossmaking Citylinks parcel delivery division for £1 to Better Capital, the private equity group founded by UK buyout veteran Jon Moulton.
Meanwhile Balfour Beatty, the FTSE 250 construction company, has struggled with the downturn in the UK construction industry and its own internal management problems.
In April the 104-year-old company issued its second profit warning in six months as it revealed that full-year operating profits for its British construction business would fall £50m short. It means that the division, which accounts for 25 per cent of the group, will only break even for the year.
WorkPlace provides facilities management services to hospitals, schools and governments. It has an annual turnover of £650m and employs 15,000 people. At the start of 2012, it won a 10-year contract to run the Queen Elizabeth Olympic Park in east London, which includes the ArcelorMittal Orbit. The disposal of WorkPlace, managed by Citigroup, would enable Britain’s largest construction company by sales to focus on the expansion of its international operations, which accounts for half of revenues.
Rentokil, CD&R and Balfour Beatty declined to comment.
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