Buy Marlowe as fire protection heats up

The group has made more than a dozen acquisitions since its creation in May 2015, sending its market capitalisation to £120m. Its operations are divided into two divisions, fire and security, which accounted for just over 70 per cent of first-half revenue, and water and air.

The acquisition strategy focuses on finding non-discretionary service companies with annuity-type recurring revenues, strong market positions and high return on capital employed, with enterprise values from £1m upward. The group has funded this activity with three £10m placings, all of which were oversubscribed and took place at around the market price for the shares. Marlowe also has £18m of additional facilities comprised of term loans and revolving credit and overdraft facilities.

The management team and board has a track record of building successful companies in the support services sector. It includes Charles Skinner, a non-executive director who is also chief executive of office services provider Restore (RST), as well as current chief executive Alex Dacre, who was formerly an acquisitions specialist at Restore and recruiter Impellam (IPEL). The track record of the team behind Marlowe is important given the group’s relatively recent listing and the resultant limited track record

In light of the Grenfell tragedy, companies and organisations are increasing their focus on compliance with fire protection and safety regulations. In his recent Budget speech, Chancellor Philip Hammond appeared to pledge financial support for local authorities unable to fund essential improvement works, instructing them to “contact us immediately” if they cannot access funding to pay for essential fire safety work.

The fire safety market in the UK is heavily fragmented and Marlowe is well placed to benefit from consolidation, having acquired nine fire protection and safety companies since float. It is also in a position to accommodate the expected uptick in demand for fire safety improvements, and has invested in increasing its capabilities in anticipation.

Network size and route density are key factors in the success of service-based businesses, and Marlowe is now one of the largest operators in the UK fire market. This should lead to dramatically improved performance as acquisitions are integrated.