Consolidation has long been a theme in the support services sector. But in recent weeks, M&A activity has reached fever pitch. The highest-profile deal is Carillion's (CLLN) audacious swoop for troubled rival Balfour Beatty (BBY). Technically, it is a merger rather than a takeover, but Carillion is clearly doing all the running.
Carillion is not the only vulture circling Balfour. Press reports suggest that WS Atkins (ATK) wants to get its hands on Balfour's US consultancy business Parsons Brinkerhoff. Balfour announced in May that it would sell the business off - although Carillion wants to hang on to it.
For now at least, the sale process is continuing, and press reports suggest Atkins has made the short-list of potential buyers. City analysts say that the rumoured price tag of £600m looks reasonable and Parsons Brinkerhoff would be a good fit for Atkins. Small-cap support services player VP (VP.), meanwhile, snapped up Balfour's rail equipment rental business for £5.5m in July.
Just under two weeks ago, engineering consultancy Hyder (HYC) announced an agreed takeover at 650p from Dutch rival Arcadis. The deal received unanimous recommendation from the board and a fair chunk of irrevocable undertakings. But late last week a rival bidder - Japanese engineering consultancy Nippon Koei - stepped in with a 680p offer. City number-crunchers say that the latest bid values Hyder at around 12 times cash profits. That looks punchy when you consider deals in the sector over the past five years have tended to be at six to nine times. But Hyder's profits are currently depressed, and if you use peak historic cash profits, the multiple drops to a more normal-looking 10 times.
"Consolidation has been a sector theme for a number of years and this event highlights the value that exists within the sector," says N+1 Singer analyst Andy Brown. He says the UK has a number of quality operators and international players are always seeking specialist skills and geographic reach.
On his figures, Sweett (CSG) and Waterman (WTM) look the cheapest on under five times cash profits with RPS (RPS) and WYG (WYG) coming in at around seven times and Atkins around nine times.
