G4S Plc agreed to acquire ISS A/S for £1.5 billion ($2.4 billion) to create the world’s largest integrated security provider and office cleaner for clients such as Citigroup Inc.
The purchase of ISS from EQT Partners and Goldman Sachs Capital Partners has a total value of £5.2 billion, of which £3.7 billion is assumed debt, Chief Executive Officer Nick Buckles said on a conference call today. The deal will be paid for in cash and new shares, and G4S said in a statement that it plans a £2 billion-rights offer to fund the purchase, sending its stock down the most in seven years.
G4S is playing into a trend for customers to bundle different kinds of office-upkeep and security services into a single contract. With the purchase, the Crawley, England-based company gains access to the £500 billion-facilities management market, where the ability to offer other services alongside security can boost expansion by one-two per cent, Buckles said.
“G4S has a good track record on acquisitions and the move to an integrated facilities services offering does have some logic,” Robert Plant, an analyst at JPMorgan Chase & Co with a “neutral” recommendation on the company, said in a note.
The British company fell as much as 19 per cent to 229.5 pence as of 10.56 am in London in the biggest intraday drop since at least 2004.
INVESTORS ‘POSITIVE’
G4S expects an earnings-per-share boost of at least 10 per cent from the deal, Buckles said. Combining the businesses could result in a “couple of thousand” job cuts, he said.
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“We saw all our top 12 shareholders in person or on the phone and they all were positive about the deal,” the CEO said.
The transaction will create a global services provider with £16 billion in sales, generate £100 million in annual cost savings by 2014 and drive growth in emerging markets, G4S said. The price the UK company will pay is equal to 8.5 times ISS’s earnings, according to the statement.
The UK company was formed seven years ago through the merger of Group 4 Falck A/S and Securicor Plc. G4S and Copenhagen-based ISS have separately made hundreds of smaller deals to fill geographic holes in their coverage, absorbing minor competitors that struggle to compete on scale and breadth of service.
‘GAME-CHANGER’
“This is a real game-changer on all metrics,” Buckles said on the call. “We don’t have a direct competitor that can deliver the range of services we can.”
ISS retreated from plans earlier this year for an initial public offering because of weak capital markets, and the company had said it might revive the IPO. Apax Partners LLP in January dropped a euro 6.4 billion ($8.87 billion) bid for ISS, according to two people familiar with the talks at the time.
Deutsche Bank AG, Royal Bank of Scotland Plc and HSBC Holdings Plc are underwriting new debt facilities. Deutsche Bank and Greenhill are joint advisers to G4S, alongside HSBC and RBS Hoare Govett.