Mears has agreed to buy Supporta, which provides outsourced homecare services, in a £27.2m ($43.9m) all-share deal.
Mears, which primarily provides maintenance and repairs for social housing, first went into the homecare market via the £22m acquisition of Careforce in 2007.
“We’ve had a long-term strategy of building a market-leading position in this area and this is one of the final stages,” said Bob Holt, chairman and chief executive.
The company has offered 0.115 new shares for each Supporta share. That values Supporta’s shares at 31p, a premium of 55 per cent to their closing price before the offer period started on October 29.
Analysts estimate that the domiciliary care market is worth £3bn a year. It provides “essential services”, or home visits by care professionals, mostly to the elderly. It is paid for by local authorities but the market is extremely fragmented with a large number of companies providing services. Some contracts attract more than 50 bidders.
“It’s consistent with what Mears said they were going to do,” said William Shirley, analyst at Liberum Capital. “There were four players on this kind of scale, but I think Supporta was the most digestable of them.”
Mr Shirley doubted that any synergies would be significant.
“It’s hard to see what synergies are attainable, it doesn’t look like they can cut much across the base,” he said. “There’s also a question mark whether the 11 per cent margin can be sustained”.
“It is not necessarily about synergies, though combining two public companies always leads to some,” said Mr Holt. “Supporta is an operationally good business which works in different regions to us. In Scotland and London they have a much bigger presence than we do.”
The majority of Mears’ maintenance and repair operations are funded through tenant rents, which should help the company to weather the negative impact of future public sector cuts.
This week Mears announced that it had won £200m of additional contracts. “We’re not worried about the effects of cuts next year,” said Mr Holt, who was formerly chairman of Supporta. “We’ve got lots of contracts.”
Shares in Mears fell 4p to 265½p while shares in Supporta rose 4¼p to 28¾p.