There has been an increase in merger and acquisition activity within the FM services sector over recent years; which according to analysts is set to continue. What are the benefits to customers, clients and the services providers themselves of this level of consolidation within the FM market? Does a M&A help improve the quality of the services provided or stifle innovation and limit choice? And what can organisations going through the process do to reassure clients and staff that the process can benefit them as well as their organisation?
The activity around ongoing mergers and acquisitions (M&As) within the FM sector is not surprising given the development and maturing of the market. This is a situation that is currently being replicated around the world as is evidenced in the increased interest in association membership, education, as well as the development of standards. Another factor however is where organisations that truly understand Facilities Management as opposed to Facilities Services are scarce on the ground.
M&As occur for many reasons including a fast track to market growth but also to obtain knowledge and resources where organisations that have been around for some time are natural targets.
However, an additional reason is the professionalisation of Facilities Management which naturally brings with it greater recognition of what it offers the client communities in terms of operational efficiencies and effectiveness. Every organisation is looking to get a benefit from the strategic and tactical planning and support services delivery that will provide compliance, standards and value for money.
In terms of consulting and management companies, there are few on the ground who are able to demonstrate a track record in these areas of operation. There are of course many more services related companies working within the sector, it is the ability to offer an integrated solution encompassing these skills and competencies that will deliver optimum value to the end users and clients. The quick and easy way to do so for many is via M&A.
There is likely to be a tangible benefit where such consolidation of services will remove layers of management and that in itself should deliver efficiency improvement although not always effectiveness. Disadvantages could include changes to senior management which therefore means changes in the client/ service provider dynamics and working relationship. People do business with people and where this occurs the dynamics of the contractual relationship can be affected.
There are of course risks associated with an organisation that creates greater competencies and competitive advantage via M&A, not least the change management requirement that goes with this approach; including internal politics and the potential disruption due to changes in the dynamics within any given contract.
The quality of the relationship as well as the quality of the services being delivered could be the casualty behind many M&A’s. Fortunately for the larger organisations within the FM sector such activities are well practiced these days and it is fair to say that many of them have proven to be very successful in incorporating a smaller organisation into a larger one with little or no disruption.
Quality is often a subjective measure and the current activities that are creating ISO Standards in FM will hopefully play a part in raising the bar regarding those FM service providers being able to demonstrate their credentials in this regard.
M&As will of course continue to occur but so will the SME that chooses to innovate in ways that the larger FM provider cannot. That in itself will feed to ongoing cycle of M&As within FM which is currently the fastest growing market in the built environment sector.
Facilities management was a sector that was largely born out of the trend for outsourcing business functions in the recession of the 1990s. Over the years the sector has maintained its flexible approach and thrived at times of economic uncertainly. This view is supported by Mintel in their facilities management report from October 2016. M&A has been one of the ways in which FM organisations have been able to provide stability, as well as increasing profitability through economies of scale.
One of the key benefits for companies and indeed their clients is that M&A can be an effective way to build a one stop shop for a range of FM services. This can of course strengthen their proposition, which means they are better equipped to fully embed their relationship with the client. Not only can this lead to a longer term working relationship, but most often for those delivering soft services they are more likely to be brand ambassadors and reflect the values the client requires.
Buying a specialist arm of a service outside of FM’s core operating area, for example technology, can provide new business opportunities to an organisation that previously did not have experience in this area. In this case M&A can increase flexibility and capabilities at a greater speed. Also, these new areas offer greater opportunities for growth and return, and therefore seeing the potential may be more readily accepted by the existing workforce who see the opportunities for the whole of the organisation’s proposition.
But success can be acquired not just specialism, another trend is to extend geographic reach which is another popular reason for a merger of more soft service FM functions such as cleaning. However, these propositions may be less attractive as the margins are smaller although it can allow the larger company to tender for greater contracts, which is particularly true of those looking to work within the public sector.
However, while these general business principles hold true, there will always be those businesses either looking for a personal service from smaller outfits or to work with specialist suppliers. There can be many reasons for this, but more often than not, this will still come down to what is perceived to be offering value in other areas and the perception that cheapest does not always mean it will offer the best value.
As BIFM’s research and information manager of course these are observations rather than someone working at the coalface of FM. Business principles show that merger and acquisition activity, is typically more buoyant in industries where growth opportunities are present. With the sector estimated to be worth up to 7 per cent of UK GDP, FM is particularly attractive for M&A perhaps because so many depend on it to deliver its services.