As Mitie completes its acquisition of Interserve Facilities Management, in an exclusive interview with FMJ, Mitie CEO Phil Bentley explains how a new operating model combines the best of both FM services companies
All being well, at 11am this morning [Tuesday 1st December], Phil Bentley, the chief executive officer of Mitie will be hosting a Microsoft Teams meeting to which over 77,000 employees of the FM services company are invited. That call will be the first time Bentley will address all the staff on the joining of two businesses – Mitie and Interserve Facilities Management, the support services arm of the Interserve Group.
The deal brings the combined workforce of Mitie to over 77,500 employees and creates the UK’s largest FM support services company. During the acquisition process, Mitie reduced its original offer from £271m to £190m due to the impact of Covid on Interserve’s bottom line. To those who wonder ‘why now’ CEO Phil Bentley acknowledges the heady times and spells out why there is method in this supposed madness.
“For some people it seems a strange time to do this deal, but it was opportunistic and finding the right home for Interserve FM was important.”
He also points out that the deal, which is based on a cash free and debt free basis for consideration of £120m in cash and approximately 248m shares in Mitie, is “based on a solid balance sheet.”
Prior to Bentley joining Mitie in 2016, it was groaning under the weight of a spate of acquisitions – and he’s worked hard to turn things around.
“When I joined, I had to write off a lot of stuff. We had negative net assets, as from an accounting point of view our businesses were over leveraged. A lot of the acquisitions back in the day by Mitie were what was known as the ‘Mitie model,’”
He explains. “They’d buy part of a company and if you hit your numbers in three years it would make you rich. What that drove was a lot of short termism – so while people still delivered decent services, there was no long-term strategy. We had one hundred payrolls a month, everyone had different IT solutions and people didn’t collaborate because there was no incentive to do so. You just had to hit your numbers.
“I stopped that early on, with a ‘one company as Mitie’ strategy, and put incentives in for people to look at the end to end service delivery, utilising strategic account managers who ran the account from end to end.
“Where previously there may have been different Mitie companies all touching the same client and often competing, now we’ve a clarity that is dependent on top line, cash collection, but also net promoter score. That is, ‘what does the client think of it, and what do our people think who work there?’”
The interest in purchasing Interserve, which has been struggling to recover after nearly going into administration last year, is the opportunity to combine Mitie’s investment in technology innovation with Interserve’s high public service profile. This is why the acquisition is just for the support services arm of Interserve, with Construction, Equipment Services and Citizen Services being left under the Interserve Group umbrella.
Says Bentley: “The difference with Interserve FM is that it’s a cleaning, security and engineering business and we’ve been getting out of pest control, social housing and more recently catering because we want to be good at those three things because they’re the heart of our business.”
Where Mitie hasn’t had a big footprint has been in large government contracts, compared to Interserve which is one of Britain’s biggest government suppliers, with contracts in catering, cleaning, maintenance and security for clients including DEFRA, the Department for Education, Department for Transport, DWP, the Cabinet Office, Canary Wharf Civil Service Hub, the Foreign and Commonwealth Office and the MoD.
As Bentley says, “The biggest procurer of FM services in Europe is the MoD but we’ve never dealt with them as Interserve does. At the same time what they don’t have is the investment that we’ve made in technology, and our customer focus on innovation.”
Mitie won a coveted Real IT Awards (RITAs) award in July of this year in the ‘Artificial Intelligence / Machine Learning Project of the Year’ category for its ESME Chatbot. ESME a Customer Service Chatbot that uses AI to respond to client’s requests, improving response over time thanks to machine learning. This quick and simple way for customers to resolve queries has already been rolled out to 32 of Mitie’s clients, who no longer deal with a call centre. Clients can also utilise Mozaic, Mitie’s online analytics portal that allows clients to access real-time data on how efficiently workspace is being used and on how well sites’ systems, such as HVAC, are performing. Clients can also raise issues and request resources to be allocated for tasks, ranging from cleaning up a spill to fixing equipment through the system.
Explains Bentley: “The heavy lifting was devising the innovations in the first place so in the UK [following the acquisition] we aim to be the partner of choice in Government as well as in the private sector. Currently, the public sector doesn’t have any of that sort of information. Public sector always says, ‘we want innovation’ – but it takes time to shift that thinking and I believe tech will eventually help them run a smoother operation.”
He predicts that Covid will accelerate the adoption of technology and promises Interserve staff will benefit from this renewed focus on digital communication. Mitie asks everyone to share their email and mobile number while the entire workforce will be made ready to log onto Microsoft Teams for an ‘all hands call’, this Tuesday morning.
New look Mitie
Merging the culture of two disparate teams won’t be an overnight process and it’s already required quite a bit of work – spearheaded by Karen Thomas-Bland who took up the newly created role of Programme Integration Director but will be departing now the deal is complete
According to Bentley the main job of reorganising the teams has already been done, with the plan being to split the business, which at Mitie previously comprised ‘hard, soft and other businesses,’ into five divisions:
- Business Services (Security, Cleaning and Office Services)
- Central Government and Defence – a new division for Mitie and taken directly from Interserve’s already strong presence in the MoD, Whitehall etc
- Communities (Hospitals, PFI Schools, Local Authorities) which again comes over from the Interserve brand
- Technical Services (Engineering Services, Energy, Water and Real Estate Services)
- Specialist Services (Care & Custody, Landscapes and Waste)
According to Bentley, Interserve’s Business and Industrial division, which was hit hardest by Covid as it includes “all the high street stuff, will be divvied up and that will go into the other divisions over time”.
“We’ve got around nine months to move the brand over and we’ve already signed off the communications for our front-line staff. The reality is we’ve probably made more progress than Interserve in the last three years in terms of our people’s engagement levels and we want to get people excited about being part of an FM company which is going places as opposed to being part of a much bigger company where they’re lost amongst the other sectors, such as construction.”
“If we want to be a great place to work we’ve got to be different by recognising it’s our people who make the difference. I’ve three mantras: our people give their best when we show them that we care. We work best with our clients when we collaborate, and technology is changing our industry. Everything we do is centred around those beliefs, development, inclusion and a commitment to the Real Living Wage.”
The sheer size of the transaction required clearance by the Competition and Markets Authority to check if the proposed acquisition would reduce competition in the FM sector. The CMA approved the acquisition but there is understandably some nervousness in the sector on the dangers of Mitie sweeping all before it by negotiating contracts according to price. Bentley counters that his primary aim will be to give FM services delivery the power of transparency – moving away from the bad old days when if the cleaner didn’t turn up, the FM supplier would still charge the client, but not pay the cleaner.
He says for example: “With Lloyds bank we’ve got a payment by results model, so our cleaner has to turn up and the engineer meet their SLAs. The system clicks up every day to show how much work we’ve done and while the tech behind this is huge, once it’s been rolled out, you can apply it elsewhere. Now we’ve got industrial level capability.
“That’s the front end, but the other side of that is we can manage our supply chain more effectively. With proper supply chain management, you move from a procurement department which just buys in services without looking at the end to end delivery to a strategic supplier model which records how a job is performed, all the way through to delivery.”
He also believes the bigger Mitie gets, the more experience it can bring to specific sectors. The company has just got into the pharma sector with a GSK contract and is now talking to other pharmaceutical businesses, while in the motor industry it’s got BMW, Jaguar Land Rover, Nissan, Toyota. “In this way,” says Bentley, “We can build expertise up in sectors, and then each product is tailored to a sector need.”
He argues that Mitie’s higher profile he concludes will also benefit the FM sector as a whole.
“There’s been a shift in recognition of all our front-line heroes going to work every day and going forward on a wider scale we can use our influence to help professionalise the industry. For example, we’re not bidding on minimum wage contracts and we want clients who talk about a holistic approach to their site management, and total cost of ownership, not ‘how much did that cleaner cost an hour?’”
The FM service sector has relied too long he argues on revolving credit facilities (RCF) a line of credit arranged between a bank and a business that come with an established maximum amount, and the business can access the funds at any time when needed.
“Our industry has had all its financing on the RCF. Carillion was drawn up to last dollar, then they went bust and the banks lost out. By contrast, Mitie now has the equity base so we can go the bond market and get money that matures in over a period of time.
“In this way, as now the biggest player in the market, Mite can demonstrate it’s got a strong balance sheet and a strong financial standing, that’s got to be good for the industry as well.”