British outsourcer Mitie is to sell its catering division to specialist caterer CH&CO for £85m as part of an overhaul process that has seen it look to narrow its focus.
The unit, Gather and Gather, will be sold for £73m upon close of the deal, plus a further £12m over the following four years, dependent on achieving certain performance milestones.
The deal comes as Mitie — which also provides cleaning, maintenance and security services — has sought to restructure its business and sharpen its focus after a difficult period in which the collapse of rival Carillion reverberated around the sector. Mitie’s share price fell by two-thirds between mid-2017 and the beginning of this year.
Its current chief executive, Phil Bentley, who has led the group since 2016, has pushed to narrow the company’s focus, with the acquisition of security services provider, Vision Security Group, from Compass last year, and the sale of its social housing division and pest control business.
“Mitie’s strategy is to invest in our core technology-led facilities management services — such as Security, Cleaning and Engineering Services — where we have a leading market position,” said Mr Bentley. “Gather & Gather is a niche player in the £4bn UK contract catering market.”
He told the Financial Times in June that the company was moving on to the second phase of its turnround, overhauling its IT systems and engineering services business. “We certainly haven’t turned around but we are turning,” he said.
Britain’s outsourcers have sought to retrench after expanding quickly by winning contracts and snapping up smaller players in sectors and countries in which they had little expertise. This delivered revenue and returns, but not necessarily profit growth, storing up future problems.
Mitie will retain a partnership with CH&CO to provide a catering service to its clients. The staff and management of the unit, including managing director Allister Richards, will transfer across to CH&CO.
Analysts at Stifel said the deal was “a further example of Mitie seeking to take on a managing agent role rather than self-delivering noncore services” after making a similar move with the sale of its pest control business to Rentokil.
Mitie’s catering business brought in revenues of £136m in the year to March 2019, and operating profit of £8.3m. This gives the deal a transaction multiple of 10.2, which the Stifel analysts said was “an attractive multiple for Mitie”. CH&CO expects to report revenues of £300m for the 2018 financial year.
Shares were flat in early Monday trading in London.
Mitie employs around 50,000 people across Britain, providing security, catering and cleaning at banks, retailers, hospitals, schools and government offices, many on the minimum wage. It is one of the largest managers of prisoner escorting and immigration detention centres for the UK government.
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