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Where is the smart money going in Support Services?June 2012

In the second quarter of 2012 Grant Thornton and mergermarket interviewed 40 private equity investors on their expectations for the UK support services sector over the next 12 months. Respondents discussed key issues affecting the market in 2012, including financing market conditions, exit trends and portfolio company management strategies. All respondents are anonymous and results are presented in aggregate.

Methodology

Where is the smart money going in support services? 1

Contents

Introduction 2

Executive summary 3

What constitutes support services? 5

UK support services in review 6

Great expectations for 2012 8

Breaking down support services: a closer look at industry subsectors 10

Value drivers and safe havens 16

A smooth exit? 18

Public vs private 20

Mind the gap 24

Navigating through uncertainty 26

Case study: Q&A with Richard Swann, Investment Director, Inflexion Private Equity 28

Case study: Q&A with Claudio Veritiero, Managing Director, Kier Services 29

Top deals 2012 – year to date 31

About us 32

2 Where is the smart money going in support services?

Introduction

In the two years since our last survey of the sector, life has undoubtedly been tough and recovery hesitant yet deal volume has remained fairly resilient in support services. The recurring revenue model has underpinned attractiveness to private equity in the sector and this has not been lost on the large corporates. Well capitalised public companies, like Capita, MITIE and Compass, have provided a healthy source of exits for private equity backed companies but also strong competition for scarce new deals.

The search for growth has taken the PE firms towards markets driven by legal and regulatory change with major transactions occurring in areas such as environmental consulting energy management and legal services. At the same time, consolidation through buy and build has proven a challenging strategy in a flat-lining market.

So, dynamic companies seeking growth and private equity backing in the sector are increasingly looking at new strategies to create value – operational improvement is key and entrepreneurial management is rising to the challenge.

The support services sector has long been a mainstay of private equity investment in the UK, regularly accounting for 25% or more of deals. But, bashed by recessionary forces in the private and public sector, how has its appeal to private equity fared? In an age of austerity how can an investment in the sector contribute to growth?

David P AscottPartner, Corporate FinanceGrant Thornton UK LLP

2 Where is the smart money going in support services? Where is the smart money going in support services? 3

Executive summary • Private equity deals in the support services sector totalled 86 transactions worth £3.1 billion in 2011, reflecting

an increase in volume from 2010 but a decline in deal value – looking ahead, 2012 is already off to a strong start with 16 deals worth a combined £1.7 billion.

• PE investors are bullish with regard to deal activity: 83% of respondents expect private equity investment in the UK support services sector to increase in the next 12 months.

• As was the case in the 2010 edition of this report, respondents identify buy-and-build growth potential and recurring revenue streams as the two most important value drivers in the support services sector.

• The next year will not be without its challenges: 45% of those polled cite the financing environment as the top obstacle facing the private equity community this year, followed by regulatory changes or budgetary pressures.

• ... But private equity investors are no strangers to a difficult environment. Challenging market conditions have caused 95% of respondents to adapt their investment strategies in recent years, largely by focusing on operational improvement of existing businesses (76%) or by seeking buy-and-build opportunities (55%).

• When it comes to specific support services subsectors, business process outsourcing (BPO) tops respondents’ list: 83% of respondents view this as the most attractive subsector for private equity investment followed by operational support (48%), consulting and advisory (48%) and facilities management (40%).

• One of the stand-out findings of this year’s study is respondents’ starkly optimistic take on the exit market: the majority (63%) believe the exit market is improving, and their optimism is coupled with high expectations for valuations. Looking back on the past 12 months, just 5% of respondents said EBITDA multiples of 7x or more were the norm. Looking ahead to the next 12 months, this percentage has increased about sevenfold, to a remarkable 36%.

This more bullish view on exits and valuations supports further growth in the sector.


What constitutes support services?

Support Services is a broadly defined sector that encompasses a wide range of subsectors. It is generally defined as the provision of services to private or public sector organisations that enable them to focus on their primary or core activities, or that enable the client organisation to perform key functions more effectively. For the purposes of this survey, we have divided the sector into four major subsectors:

• Facilitiesmanagement• Consulting,advisoryandcomplianceservices• Businessprocessoutsourcing(BPO)• Operationalsupport



UK support services in review

¹ See Top Deals 2012 – year to date, on page 31.

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In 2011 the UK support services industry registered 86 private equity deals worth a combined £3.1 billion. This marks an increase in volume and a decline in value compared to 2010, which saw 66 deals worth £4.1 billion, although the 2010 figures are inflated by the £1.7 billion acquisition of Worldpay Limited, an internet payment services company in which Bain Capital and Advent International acquired an 80% stake from Royal Bank of Scotland Group (RBS) that year. So far 2012 has already outstripped 2011 in value terms with 16 deals worth approximately £1.7 billion mid-way through Q2, led by the £950 million secondary buyout of legal outsourcing company CPA Global Limited by Cinven, from Electra Partners and Intermediate Capital Group1.

Zooming out to look at historical private equity performance shows the industry’s remarkable resilience through the crisis. Private equity deal volume in the UK support services sector has been rising steadily each year since 2009, when the drying up of the credit markets brought deal flow to a virtual halt across the board. That year there were just 35 private equity deals worth £1.1 billion, marking a 46% drop in volume and a 36% drop in value from 2008, but even so this decline was less severe than the fall witnessed in other UK sectors.


One of the key factors allowing for the sector’s exceptional performance is its buy-and-build growth potential, particularly in the UK where many subsectors remain highly fragmented. Indeed, survey participants identify buy-and-build growth potential as a key value driver, with one respondent pointing to the “number of niche areas that can be tapped for significant gains” and another explaining: “The sector is robust, and investors can easily mould their investments by helping companies to take advantage of a fragmented market”. Looking at recent deal flow uncovers a number of examples, including UK buy-and-build specialist Sovereign Capital and portfolio company LM Funerals, one of the UK’s largest groups of funeral directors. LM Funerals was acquired by Sovereign in September 2003 and sold to Duke Street for £37.5 million in 2012. Under Sovereign’s ownership, LM Funerals expanded through acquisitions, taking over many prominent UK sites with strong local reputations.

Strategic acquirers are also eager to tap the sector’s growth potential, and will provide tough competition for private equity buyers over the course of the next few years. External market drivers – including increased outsourcing activity and heightened demand for compliance services from large corporations – have made companies eager to diversify their services through acquisitions. This dynamic is reflected in the broader M&A market: from 2010 to 2011 there was an 18% increase in total support services M&A volume, including both strategic and private equity-backed transactions, from 186 deals worth £9.6 billion to 220 worth £6.3 billion, and in 2012 so far, the M&A deal activity stands at 54 worth £2 billion.

Competition from strategic buyers is one of the top concerns of respondents to this year’s survey – ranking right alongside the more widespread macro challenges like financing availability and regulatory developments. All of these factors are examined in more detail in this edition of Smart Money, which draws from the experience and expectations of 40 private equity investors in the UK support services sector to gauge market sentiment for the year ahead.

UK economy

“By any account the economic picture in the UK remains challenging. Growth in real GDP measured a meagre 0.8% in 2011, a figure reduced by a contraction in business activity in the fourth quarter, and the growth outlook for 2012 is for the same subpar rate, according to the Office of Budget Responsibility forecasts.

The projection for flat growth, however, obscures a rebalancing underway in the economy that may well be favourable to domestic deal making. Whereas exports boosted growth in 2011, its share is forecast to fall this year alongside stronger domestic activity with household spending and investment by businesses forecast to provide the biggest impetus to UK recovery.

As the government continues to push forward an aggressive drive toward fiscal consolidation, public sector indebtedness remains a stubborn issue. And as government balance sheet expands, the corporate sector has been steadily deleveraging and building up ample cash reserves.

Certainly, the sluggish economic environment is a bane to fresh investment, but may provide a spur to new business opportunities in support services as the private and public sector restructure operations to achieve greater financial flexibility, offloading non-core business functions to slim down”.

Stephen GiffordChief EconomistGrant Thornton UK LLP


We asked respondents to share their expectations for private equity in support services, and the feedback was overwhelmingly positive. The large majority of respondents (83%) expect the level of private equity activity in the support services sector to increase over the next 12 months, driven largely by investors’ desire for safe, stable investments. As one respondent explains, “Continuous and repeated business is high in support services, which gives private equity investors confidence”.

Taking advantage of opportunities in the sector is easier said than done, however, as corporate acquirers will compete fiercely for attractive assets. Close to three-quarters of respondents (73%) expect private equity firms to encounter more competition from strategic buyers in the next 12 months, and many in this group are keen to emphasise just how stiff this competition will be.

As one respondent explains, “Corporate acquirers have different goals for acquisitions, and they will compete fiercely if a deal is strategically important to them,” adding that these acquirers are often at an advantage to start with. Unlike cash-rich corporate acquirers who are ready and willing to meet high seller expectations, private equity buyers “have to look at the financial aspect as the most important factor”. Another respondent weighs in here, stating that “cash-rich acquirers will not let go of an opportunity even if it means they have to pay high valuations”.

17%

Increase greatly Increase Remain the same Decrease Decrease greatly

10%

73%

What are you expectations of private equity investment in the sector over the next 12 months?

73%

27%

Yes No

Do you expect to see more competition from strategic buyers in the next year?

Great expectations for 2012

SURVEY FINDINGS


There is still a silver lining for private equity groups in all of this. M&A savvy support services companies have a longstanding relationship with the private equity community, sourcing some of their most lucrative acquisition targets from private equity firms’ portfolios.

One of the UK’s best known support services groups – Capita Plc – sources many of its acquisitions from private equity, including the acquisition of Applied Language Solutions from Maven Capital Partners for up to £68 million, and its £21 million acquisition of insurance company Fish Administration Holdings from Inflexion. Capita also turned to private equity when strengthening its presence in the healthcare market, with the £60 million acquisition of Premier Medical Group, a medical reporting and screening services company, from Nomura Private Equity, which backed the management buyout of Premier in 2008.

Mo MeraliHead of Private EquityGrant Thornton UK LLP

“Private equity continues to be at the centre of transactional activity in support services. Activity levels have been very resilient despite the tougher transactional market and the uncertainties arising from the squeeze on public spending. Management teams and entrepreneurs have dealt with this economic challenges and have built some excellent businesses which have attracted significant interest from private equity investors. However, this interest hasn’t come only from private equity – the large support services ‘conglomerates’, whilst continuing to be very good homes for private equity exits, have increasingly become mainstream competitors for private equity. This trend is set to continue, especially given the limited availability of debt to fund new deals, making it harder for private equity to compete and still achieve sensible returns. The larger corporates are also gearing up their resourcing to absorb and integrate businesses which are relatively smaller and less developed compared to what they have acquired previously. Having said that, there are and will continue to be some very good opportunities for private equity to back good businesses and their management teams, particularly in those niche and value-add sub-sectors”.


Breaking down support services: a closer look at industry subsectors

The support services sector is still fragmented in the UK – even with the gradual push toward the one-stop-shop model in which support services businesses group an array of services under one umbrella – leaving plenty of room for growth and consolidation. When asked to identify the most attractive subsectors in this regard, 83% of respondents point to business process outsourcing (BPO) – placing this industry far ahead of operational support (48%), consulting and advisory (48%) and facilities management (40%). Going into slightly more detail on all the subsectors listed here one respondent says: “Facilities management and operational support will grow in the segments backed by the Government, while BPO and consultancy services will have consolidation opportunities in the private sector”.

Respondents were asked to indicate the most attractive areas within their preferred subsectors. The chart illustrates the most attractive subsectors in the inner circle.

Where do you see the most opportunity for growth and consolidation:

Percentage of respondents

83%

48%

48%

40%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

BPO

Operational support (including infrastructure and logistics)

Consulting/advisory services

Facilities management

BPO

The popularity of BPO mirrors the rapid ascent of outsourcing, which has helped BPO companies to see phenomenal growth with private equity’s help. Within BPO, respondents are most attracted to sales & marketing services or IT-related services, selected by about one-half and one-quarter of respondents respectively as the most attractive BPO segments.

In particular, the popularity of sales & marketing is reflected in one recent deal from 2012, in which H.I.G. European Capital acquired two businesses from 4Imprint

Group Plc, a UK-based marketing and promotional products supplier. The £24 million acquisition includes UK-based Brand Addition Limited and Germany-based Kreyer Promotion Services, both providing promotional material products to medium to large businesses. ECI backed management buy-out of Reed & MacKay in April 2011 is another example of outsourced services (see case study).


Operational supportOperational support services – which covers document management, parcels & mail, and logistics & distribution – also warrants a closer look, particularly as public sector demands for such services are set to rise in the near-term. The widespread austerity measures and resulting cuts in government spending will likely cause large organisations to revisit their operational support contracts and consolidate suppliers in this field. When asked to identify the most attractive area within operational support, 63% pointed to document management.

Another noteworthy area within operational support services is logistics: in 2011 Exponent Private Equity agreed to acquire Pattonair Limited, a UK-based supply chain management support company servicing the aerospace and defence markets, from Umeco Plc, the UK-based distribution and supply chain management company, in a deal valued at £146 million.

CASE STUDY

Danwood Group Holdings Ltd

Founded 40 years ago by its current MD Colin Daniels, the Danwood Group has grown to become the largest independent supplier of printing equipment, consumables and associated management services in Europe. In 2010 the Lincoln-based business ranked 158 in the Sunday Times HSBC Top Track 250, up 83 places from the previous year. Over the last decade, a core part of its growth strategy has been to gain critical mass via acquisition. In the main, this strategy has been funded from free cash flow, and additional funds raised in 2008 through the sale of a minority equity stake to the London-based private equity group Bregal Capital.

In recent years, Danwood’s management have built a strong relationship with the Admiral Group, a leading UK supplier of print solutions, and in the middle of 2010 formal discussions surrounding an acquisition were opened. Initially, Danwood planned to fund the acquisition by raising a new debt facility from its two existing senior lenders and Grant Thornton UK LLP was tasked with providing financial and tax due diligence on the target, as well as a reviewing the enlarged group forecasts for the house banks.

While early meetings with the banks’ key relationship managers were very positive, it soon became clear that the continuing caution being demonstrated by lenders’ credit committees would make it difficult to have the loans approved within the timeframe dictated by the vendor, and the focus of both Danwood and its advisors had to shift to finding an alternative source of funding. In the event, Danwood’s flexibility paid off and the company was able to raise the necessary funding from its existing private equity partner Bregal Capital.

CASE STUDY

Reed & Mackay

Established in 1962 Reed & Mackay is a leading provider of strategic travel management services to the corporate sector. They provide high quality, high-touch business travel services with a significant focus on the legal, insurance and financial services sectors where it has developed a strong market share though their high quality and value added services. ECI and ISIS Equity Partners completed the secondary MBO of Reed & Mackay in April 2011 and backed the incumbent management team led by Andy Hibbert and sales director, Tracy Baumfield, and also supported by David Maloney as Chairman. Using previous experience in the sector, Grant Thornton were able to provide travel sector operations and technology experts, who reviewed the Reed & Mackay business systems and processes and performed the financial and tax due diligence, operational and IT due diligence, tax structuring to ECI and ISIS and tax advice to management on the transaction, with debt funding from Lloyds TSB Corporate Markets.


Consulting and advisory services

In the consulting and advisory sphere, respondents are most optimistic in their outlook for training with more than half saying this area is most attractive. General recruitment and environmental advisory services also rank highly. As far as this industry is concerned there are a lot of niches for private equity firms: the acquisition of Ascend Worldwide Ltd, a UK-based company providing comprehensive information and analysis on the aerospace industry, was acquired by Reed Business Information (RBI) for an undisclosed amount in 2011 after being spun out from the broader Ascend Worldwide businesses in a deal backed by Lloyds TSB Development Capital in 2010; under private equity ownership Ascend evolved into a data business. Another deal that illustrates the attractiveness of the subsector is the £587 million acquisition of Environmental Resources Management (ERM) by Charterhouse Captial partners in 2011 – in the deal’s announcement the company cites market drivers including increased regulation and a sharper focus on corporate social responsibility.

CASE STUDY

Driver Hire

Based in Bradford and operating nationally, Driver Hire was established in 1983 and is one of the UK’s and Ireland’s largest specialist transport and logistics recruitment companies and is the leading provider of temporary and permanent personnel to the logistics and distribution industries. Driver Hire services around 5,000 corporate customers nationwide. Major structural changes in the logistics sector, such as the increase in just-in-time manufacturing processes and the growth of home delivery from ever-increasing online retail sales, require logistics operators to be far more flexible, driving demand for short-term, temporary drivers. As a result, in its latest financial year, Driver Hire’s total network turnover rose 22 % to £66.5 million.

Grant Thornton had maintained a relationship with the management team at Driver Hire over a number of years so when they indicated that they were looking for a new equity provider to support the company’s growth strategy and potential international expansion, Grant Thornton was able to introduce LDC. Led by its Leeds office, LDC has invested an undisclosed sum for a significant shareholding, providing an exit for Spirit Capital who backed the business in 2004 (as Aberdeen Murray Johnstone Private Equity). Debt funding was provided by Yorkshire Bank Corporate and Structured Finance.

James Robson Director, Corporate FinanceGrant Thornton UK LLP

“We have seen both the professional and vocational training sectors being fertile ground for corporate acquirers and private equity investment. Transactions in the these sectors have ranged in scale and scope from Sovereign Capital’s investment into a joint venture partnership with Lifetime Training Group Limited, one of the UK’s largest providers of vocational training to the health, fitness care and hospitality sectors, in August 2011 to Apollo’s acquisition of BPP in August 2009. However, with the acquisition by Montagu Private Equity of the College of Law in April 2012 (and conversion from charitable to profit making status) we are now seeing an expansion of mainstream private equity activity into the adjacent higher education sector. This is a trend worth watching as we may well see more financial investors entering the higher education sector as the Government’s austerity measures bite and education budgets are squeezed”.


CASE STUDY

Facilities Services Group Ltd

Based in Aylesbury, Buckinghamshire, Facilities Services Group (FSG) is a leading UK provider of hard facilities management services, specialising in the physical maintenance of buildings and equipment, with a particular focus on clients operating in the retail, leisure and property sectors. The group, which was originally formed in 2008 via the merger of Circle Britannia, Serviceline and Atlanta Facilities, aims to provide industry-leading value for money, especially when its core services are combined in a proprietary energy management package, which can help to reduce clients’ property ownership costs.

In February 2011, FSG’s management team, advised by Grant Thornton’s Manchester corporate finance practice, successfully completed the MBO of the business from Spice Limited in a deal supported by leading UK lower mid-cap investor NBGI Private Equity. The deal removes the constraints of corporate ownership, leaving the management team free to pursue ambitious growth strategies, both organically and through acquisition. For its part, NBGI took a majority stake in FSG, but has also pledged further financing to provide the firm with the resources it needs to expand its range of services. Although this is the first time FSG’s management team has worked directly with a private equity backer, it is aware of the skills and benefits such a move can bring. The group’s former owner, Spice Limited, is itself now private equity backed, having been taken private by larger buyout investor Cinven at the end of 2010 in a £360 million de-listing from the FTSE.

Facilities management

Facilities management has long been on the radar of private equity groups in the UK, due largely to its flexibility, says one respondent: “In facilities management, there are no significant barriers to outsourcing projects and there is a lot of potential to diversify service offerings. Private equity investors can encourage portfolio companies to diversify their services, and doing this can add significant value to an investment”.

Looking at recent deals in the facilities management space shows that many companies’ services are specialised and tailored to very specific client bases. Garrets International is a prime example: the company, acquired by GCP Capital Partners for £15 million in early 2012, provides on-board catering services to ship owners and ship managers. Garrets was founded in 1991 and reported revenues of approximately £27 million in 2011. Its experience and reputation serving a smaller, niche market could make it an ideal candidate for a larger strategic buyer looking to diversify its service offering further down the line.


Consulting and advisory services

Facilities managementBPO

Operational support

Most attractive (choice one) Very attractive (choice two) Attractive (choice three)

Popularity of target sub-sectors

Training

Environmental

General recruitment

Property services

PR & marketing

Consultancy

HR consultancy

Mechanics & electrical

CleaningPest control

Fire protection

Catering

Washroom hygiene Fabric

maintenance

Sales & marketing

ITPayment services

HR & payroll

Document management

Parcels & mail Logistics

& distribution


David Ascott Partner, Corporate FinanceGrant Thornton UK LLP

“Complex higher margin activities with strong contractual underpinning, such as BPO in the Financial Services sector, attract the strongest private equity interest whilst more mature and consolidated areas such as FM are more difficult to generate widespread interest”.



Value drivers and safe havens

The support services sector is repeatedly described as a safe haven for investors during uncertain times, with one respondent saying that “long-term embedded contracts and high revenue visibility” have drawn investors to the space and another stating that support services companies can “ensure continuous and recurring revenue”. A third respondent describes the bigger picture in stating, “Private equity investors were quiet after the recession in 2008 and through 2010, watching corporate buyers’ activity and listening to the dialogues of government on issues like spending cuts to control debt. Now as the market has stabilised, support services is one of the sectors which fared much better and private equity investors are keen to revive their investments here”.As for buy-and-build potential, the UK offers clear examples of the industry’s potential. In early 2012, for instance, UK-private equity group Lloyds TSB

Development Capital (LDC) announced its £112 million acquisition of Pertemps Limited and its £24 million acquisition of Network Group Holdings, with the ultimate goal of creating a diversified player in the job provision market by merging the two businesses. LDC is pursuing a similar strategy with another portfolio business, document management company Sala International, which last year acquired EDM Group – an information management company that counts the NHS among its top clients – for £31 million.

Success stories notwithstanding, support services companies will still face an array of challenges in the near term. When asked to identify the most significant obstacles facing the industry in the next year, the largest percentage of respondents (45%) cite the financing environment, followed by the regulatory environment and government spending or budgetary pressures.

The value drivers in support services are clearly well-known to the private equity and corporate communities. We asked our respondent pool to identify the most lucrative of these value drivers and emerging as the top three were: the potential to offer bundled services to a single customer base (80%), buy-and-build growth potential (78%) and recurring revenue streams (65%).

“Despite the chaos and the rhetoric of the last few years, the UK public sector continues to offer significant opportunities to support services organisations and their investors. Given the fragmentation of the marketplace, and the visibility of the revenue streams, the public sector is well placed to offer value drivers of a high quality. Arguably, with the increasing focus on cost reduction and value for money, the time has never been better for creative outsourcing propositions. Opportunities are, however, likely to lie in services which are complex and politically more sensitive – such as education, health and social services, which would benefit from exposure to the private sector”.

Stuart Black ChairmanLakehouse Contracts


Economic uncertainty and financing difficulties will put pressure on all businesses’ near-term prospects – and the support services sector’s exposure to virtually all industries means it is bound to feel the knock-on effects. Indeed, results from the Bank of England’s quarterly Credit Conditions Survey show that spreads were reported to have widened significantly over benchmark rates for large and mid-sized companies in the first quarter, and slightly less so for smaller firms. But, in some cases, external distress will bring new business to the support services industry, particularly when it comes to government spending cuts, as the cash-strapped public sector is expected to lean more heavily on outsourcing to cut costs. “Support services companies will benefit from the ongoing trend towards local authorities outsourcing non-core activities, as a way of maximising efficiency against a backdrop of significant budgeting cuts.”

This trend toward outsourcing has allowed some private equity groups to build up smaller outsourcing businesses into larger, diverse players. Intelenet Global Service, an Indian business process outsourcing (BPO) company and former portfolio company of US-based Blackstone Group and UK-based Barclays Bank, is a case in point. Under private equity ownership, Intelenet made a string of acquisitions over the past few years including its £34 million acquisition of UK-based transportation services company First Group Plc’s ticketing division. In 2012, Intelenet was acquired by UK-based strategic buyer Serco Group for £385 million.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Which are the sector’s key value drivers?

Potential to offer bundled services to same customer base

Buy-and-build growth potential

Recurring revenue streams

Predictability of cash flow

Provision of specialist services

23% 38% 20%

30% 12% 35%

28% 23% 15%

10% 16% 18%

8% 8% 10%

First preference Second preference Third preference

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Which obstacles will support services companies face this year?

Potential to offer bundled services to same customer base

Buy-and-build growth potential

Recurring revenue streams

Predictability of cash flow

Provision of specialist services

R&D/innovation issues

45% 13% 23%

18% 38% 10%

20% 15% 23%

13% 18% 13%

5%

5%

8% 15%

15%

First most significant Second most significant Third most significant


A smooth exit?

Looking ahead to 2012, the majority of respondents (63%) view the exit market as improving and remaining respondents are uncertain, but no respondents describe conditions as deteriorating.

Those surveyed have repeatedly stress that corporate acquirers – ideal suitors for private equity sellers, but fierce competitors against private equity buyers – will present attractive exit routes in the next year as they seek to scoop up smaller targets from buyout groups’ portfolios.

One respondent explains: “Large players are starting to provide services in diverse categories on an integrated platform. Smaller companies are ready to sell their stakes as deal values have rebounded – this will give further opportunities to large companies and will help them to climb the value chain by getting stronger in small scale markets too”.

37%

63%

Improving Deteriorating Uncertain

Valuation outlook

Buy-and-build potential is one of the main reasons for the support services sector’s resilient exit market. In 2011 there were 37 exits worth £2.3 billion, representing a 61% increase in volume and an 94% increase in value from 23 exits worth £1.2 billion the previous year.

David Ascott Partner, Corporate FinanceGrant Thornton UK LLP

“This survey clearly confirms a significant upturn in confidence in both the exit market and the expectation of values. Whilst challenges remain such as banking, the fundamentals do seem to have turned a corner positively for realising investment at attractive prices in the sector”.


This optimistic exit outlook is coupled with high expectations for valuations this year. Looking back on the past 12 months, just 5% of respondents said EBITDA multiples of 7x or more were the norm. Looking ahead to the next 12 months, this percentage has increased about sevenfold, to a remarkable 36%. At the same time, more than half of respondents say 6x to 7x multiples will be most common in the year ahead, as they were last year.

Their optimism is not unfounded. Support services assets have garnered high valuations even in the most difficult of exit environments, with one recent example being the acquisition of EDM Group by Sala International, valued at £31m and representing an approximate 12.9x EBITDA multiple.

Offering some perspective on today’s valuation climate, one respondent says: “In spite of competition over price, EBITDA multiples will increase as companies earn more revenues at the same cost, by providing diverse services to the same clients”. Two other respondents separately add that “margins have increased because of increased efficiency and innovative ways to providing services” and that “in support services we have seen companies’ ability to offer customers a bespoke ‘one-stop’ service, thereby increasing their revenue and EBITDA multiples”.

50%

60%

70%

80%

90%

100%

40%

30%

20%

10%

0%

<5x EBITDA outlook 5x – 6x EBITDA 6x – 7x EBITDA >7x EBITDA

43%

10%

3%

53%

51%

5%

36%

EBITDA outlook

For private equity buyouts in the UK SS sector, what EBITDA multiples did you see in the last 12 months?

What are your expectations for EBITDA multiples in the UK SS sector in the next 12 months?

Perc

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ge o

f res

pond

ents

0%


Public vs private

Support services companies cater to a diverse range of clients in the private and public sectors – and many companies are able to serve both groups simultaneously. Consultancy and information management firms, for instance, are often able to provide the same set of products and services to large corporations, banks, and government organisations.

When asked which client pool is most attractive from an investors’ standpoint, the majority of respondents we surveyed (64%) stated a preference for the private sector whilst remaining respondents are equally divided between those who prefer the public sector (18%) and those who find both groups equally appealing (18%).

Respondents also went into more detail on the most attractive private and public sector client pools. Financial services and industrial clients are respondents’ top choices for the private sector, although one respondent outlines the difficulty of analysing the private sector as a whole: “It is difficult to classify the needs of the private sector. Each sector has different requirements for support services and you have to be mindful of this when making opportunistic investments. For example in financial services documentation, customer services or overall BPO will be very attractive. But looking at the industrial sector, logistics support and security & safety companies will be better investments”.

“At Grant Thornton we have first-hand experience of how the evolving public sector can provide significant outsourcing opportunities in areas such as public-sector assurance and support for growth companies. In March 2012 we became the largest supplier of audit services to local authorities and the NHS under five year contract with the Audit Commission. Grant Thornton is also leading the Coaching for Growth consortium which is a contract to provide dedicated and structured coaching support to up to 10,000 high growth potential businesses a year”.

David AscottPartner, Corporate FinanceGrant Thornton UK LLP

“Major public sector reforms are underway which we believe will ultimately create major opportunities for the support services sector. For example, police forces are increasingly willing to involve the private sector in undertaking tasks other than the essential elements of detection and arrest. Leadership changes, from the introduction of elected police commissioners, may further accelerate this trend.

Likewise, in England, under the Health and Social Care Act, the NHS is seeking to achieve cost economies and enhanced care quality through a revised network of commissioners. We anticipate increasing opportunity for private sector providers alongside the NHS in delivering the health and social care services the commissioners require.

That said, the removal by the Coalition of the previous top-down, Whitehall-led approach means the pace of adoption varies by sector, location and institution. Given this, it is unsurprising that the support services sector remains primarily focused on the private sector, where opportunities are easier to access and quicker to generate revenues from.”

Neil Rutledge Partner, Government & Infrastructure AdvisoryGrant Thornton UK LLP


As for the public sector, UK spending cuts are already pressuring government and healthcare systems to trim costs, and as such both of these groups will likely increasingly depend on support services companies. This new dynamic is reflected in respondents’ feedback, with the largest portions of respondents identifying health (43%) and central government (30%) as the top two most attractive public sector client bases for support services companies.

In the UK, the government is continuing its concerted effort toward fiscal consolidation with the Office of Budget Responsibility (OBR) projecting in the 2012 budget that government spending will fall over this year and next. Even as public spending grows in absolute terms in the period thereafter, the OBR forecasts that public spending will fall in relative terms from around 48% of GDP in 2009 - 2010 to nearly 39% of GDP by 2016–2017.

One respondent gives some insight into how this will impact support services: “Government manages many divisions like utilities, safety, environment hygiene and healthcare. Spending cuts will certainly increase the outsourcing of services in these areas”.

Do you prefer to invest in companies that serve the private or public sector?

Private Public No preference

18%

18%

64%


18%

64%

46% 36% 18%

Most attractive Second most attractive Third most attractive

0% 20% 40% 60% 80% 100% 120%

Financial services

Industrial

Commercial/Retail

43% 25% 33%

13% 40% 48%


Which private sector client bases do you view as most attractive?

It should also be noted that the flow of new business into support services will come from broader developments that affect both the public and private spheres, like increased regulatory burdens in the banking system under Basel III and Solvency II, not to mention the increased focus on sustainability and responsibility for large corporations. Another important driver will come from digitisation and technological changes, affecting both public healthcare systems and private medical companies. In early 2012, for instance, the NHS signed a £7 million contact with EDM Group – acquired by private equity-backed Sala International in 2011 – to digitise millions of medical records.

CASE STUDY

Team24

In May 2011 Grant Thornton advised the shareholders of Team24 Limited in respect of the sale to Capita Group Plc. Headquartered in Surrey, Team24 Ltd provides nurses and doctors at short notice for a wide range of temporary placements across the NHS and the private sector. The acquisition adds depth and breadth of expertise both to Capita’s recruitment business and to the range of services it provides to the NHS and wider healthcare market. Established in 2005, Team24 employs 80 staff and has approximately 4,000 doctors and nurses registered for placement. Capita acquired Team24 for an initial consideration of £24 million and a deferred consideration of up to £2 million dependent on Team24’s profit performance in the year to 31 March 2012.

Commenting on the deal, Rupert Rawcliffe, Corporate Finance Director at Grant Thornton, said: “We are very pleased to have assisted in successfully concluding this deal. We ran a highly competitive sales process which attracted strong interest from a host of trade and private equity bidders. Capita was prepared to pay a good price to support its ongoing strategy to become a leading healthcare resource provider to the NHS and the wider public and private healthcare sector”.


Outsourcing still dominates the list of market drivers in respondent commentary, with one stating: “Outsourcing is set to increase greatly. Even small companies will not like to have their workforce taking care of documentation and other administrative work. Now even very important areas like customer relationship management (CRM), which is core to business development, is outsourced. In this scenario private equity investors will have a very good chance of making good support services investments at good valuations”. Another comments on unique private and public sector needs: “Health and utilities have opportunities in all the subsectors like facilities management, cleaning, recruitment, marketing and logistics, thus the potential of providing bundled services are high. This is not the case for government organisations, which only require specific services and do not require support services like recruitment, marketing or CRM”. When asked whether government spending cuts will generate more attractive investment opportunities for support services investors, just 32% said yes. These results are not overwhelmingly positive on the surface, but respondent commentary suggests spending cuts will eventually lead to outsourcing: “As the government plans to cut funding for the healthcare sector, I believe outsourcing will further increase here”.

Another respondent likewise says public sector cost-cutting will eventually lead to increased demand for support services: “Government will not stop providing essential services like waste management and safety, but because of spending cuts they will have to look at cost-cutting options. Cutting costs will only be possible through more outsourcing”.

30%

43%

18%

10% 10%

40%

23%

28%

25%

28%

10%

35%

In the public sector client bases do you view as most attractive?

Most attractive Second most attractive Third most attractive

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Central Government

Health

Utilities

Local Government


Do you expect government spending cuts to generate more attractive investment opportunities for private equity in the UK support services sector ?

32%

68%

Yes No


Mind the gap

The debt financing environment and the lingering gap between buy-side and sell-side price expectations are considered the top two most significant obstacles facing private equity investors in support services this year. These issues are defining features of the current market, and are in no way limited to support services. But these twin challenges – funding difficulties and valuation gaps – will be magnified for buyout groups competing with corporates for support services assets.

This is something respondents will watch closely in the next year. More than half of respondents (51%) expect competition from cash-rich corporate acquirers to be a significant obstacle over the next 12 months, and many respondents warn that private equity firms struggling to arrange financing will be at an automatic disadvantage against cash-rich corporate. “The availability of finance at the right time is the biggest challenge – if you miss the right time, then you either lose the deal or end up paying a higher price,” says one respondent.

Due diligence also presents challenges to private equity buyers. Reliability of contracts and order book are each selected by a majority of respondents as key due diligence issues in the support services sector, and one respondent in this group notes that “small companies can easily manipulate their order book and this can be very difficult to identify”. On the issue of contract reliability, another respondent says: “While government spending

cuts initially brought about positive movement in the support services sector, after some time these budget constraints meant that many contracts did not go through”.

Other respondents stress the importance of scrutinising service levels and the caliber of a company’s staff: “It is very important to know that a target company is well-equipped with the technology and highly effective workforce required to provide services to their clients effectively”.

This is a particularly timely topic as many critics have questioned whether critical public services like healthcare can safely rely on outsourcing; there are also concerns about outsourcing legal functions. Such concerns have been exacerbated by budget cuts, which came under close public scrutiny in early 2012 after healthcare budgets were trimmed.

“Private equity investors are having to look harder at deals in order to unlock value. Each opportunity must be critically evaluated to see where they can unlock the value in the business to have a better chance of bridging the gap between buy-side and sell-side price, be it through performance improvement, workforce optimisation, leveraging thier extsing portfolio businesses or adding in thier own and others expertise”.

Pete DawsonPartner, Corporate FinanceGrant Thornton UK LLP

“The order book remains the key issue for investors (58% of respondents) in the support services sector when undertaking the due diligence process. Investors are paying close attention to pricing trends and contract length. With the increasing pricing and margin pressure, whilst businesses may have good contracts now, investors are aware that pricing may change in the future and there is an increasing trade off of length of contract vs price. Private equity investors must continue to have a clear understanding of the sector as a whole to understand what prices are now, what levels people are tendering at and as much as is possible, what the pricing trends look like for the future“.

Pete DawsonPartner, Corporate FinanceGrant Thornton UK LLP


Very Significant Significant Somewhat significant Not very significant Insignificant

What are the most significant challenges for private equity investors?

50%

60%

70%

80%

90%

100%

40%

30%

20%

10%

0%

23%

40%

30%

7%

38%

13%

37%

12%

30%

30%

40%

25%

52%

20%

3%

Debt financingenvironment

Price dislocation between buy and sell-side parties

Competition from cash rich corporate

acquirers

Quality of management

Current trading performance

Perc

enta

ge o

f res

pond

ents

3%

35%

9%

43%

60%

58%

48%

43%

33%

20%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

What are the key due diligence issues?

Reliability of contracts

Order book

Cash generation

Workforce utilisation

Technology

Contract accounting



Have you adapted your investment strategy in response to more challenging market conditions?

The past few years have been a trying time for buyout groups. Lingering economic uncertainty and market volatility have clouded the valuation environment, making sellers reluctant to accept low valuations and buyers reluctant to raise their stakes. For their part, private equity firms have held onto portfolio investments for longer than usual and collected a substantial amount of dry powder.

Against this backdrop the overwhelming majority (95%) say they have adapted their investment strategy in response to challenging market conditions and about one-third of this group focused on improving their existing investment through operational improvement (76%) or by seeking buy-and-build opportunities (55%).

Navigating through uncertainty

5%

Yes No

95%

If so, which of the following alternative strategies have you considered?

76%

55%

47%

0% 10% 20% 30% 40% 50%

Operational improvement of existing investments

Buy-and-build

Targeting distressed opportunities


60% 70% 80% 90%

“High quality decision support, based upon a clear understanding of cost and revenue drivers, is key to success in any business. In the support services arena long and complex contracts and the importance of operational data, which is often outside your control, make the challenge more acute. The commercial and reputational risk of failing to get this right, from the start of the contract relationship, can be highly damaging for the business”.

Steve RigbyPartnerPerformance Improvement


Many acknowledge that the support services sector lends itself to bolt-on deals to begin with – meaning what is an alternative approach in other industries is a widely accepted practice here. One respondent explains, “The support services sector is fragmented in the UK. There are many small companies that focus on very specific service areas, and they continue to run their business by providing these services effectively. Private equity investors who find it difficult to compete with corporate buyers in big deals have started to promote and help their existing support services portfolio investments and smaller support services companies by accelerating acquisitions”.

Another respondent says this has been the case for years, and describes where private equity fits in: “In the last decade many small companies have established themselves locally but they are not able to raise the capital required to grow themselves at a greater level. This leaves a lot of opportunity for consolidation – including significant buy-and-build growth potential”.

CASE STUDY

Sodexo

Establish in the 1960’s, Sodexo has become one of the world’s leading support services businesses. With operations in 80 countries, the group is providing services at more than 30,000 customer locations leading to them being one of the top five largest employers globally.

Experiencing significant growth in its International Large Accounts Division, Sodexo recognised the need to develop more robust tools and financial management disciplines in the ‘bid to go live’ phases of its contracting process. With long duration service provision contracts covering up to fifty different services to clients with up to three hundred sites, the budgeting and pricing process is both complex and commercially critical.

To deliver reliable budgets and insightful on-going financial management it has been essential to capture a comprehensive suite of financial and non-financial data and develop reporting tools capable of handling static contractual information; detailed transactional data and variable factors such as multiple currencies.

With significant contract wins putting pressure on resources to deliver both business as usual and this level of change, Grant Thornton has worked with the group to deliver an effective tactical solution and embed new tools and process in the business. Standardised data capture tools have been built into a flexible and automated reporting platform enabling agile and insightful financial management across geographic and operational boundaries, underpinned by a robust control framework to ensure high quality decision support throughout the contracting process.

CASE STUDY

Spicers/Better Capital

Grant Thornton advised Better Capital on the acquisition of Spicers UK and Ireland from DS Smith plc. Spicers is one of the leading wholesalers of Office Supplies and Office Equipment, selling to 13,000 office products resellers, from local office supplies dealers to large multi-national retailers and contract stationers. The Spicers business covered all of the key markets in Western Europe with customers in the UK, Ireland, France, Germany, Austria, Spain, Italy, Belgium, the Netherlands and Luxembourg. The Spicers business was sold to Unipapel, a Spanish trade partner, who sold the UK and Irish business to Better Capital under a back to back agreement and retained the Continental European business.

The deal originated when Ray Peck, a renowned office products and business services entrepreneur, approached Grant Thornton’s Corporate Finance team to help secure financial backing for the acquisition of Spicers. Ray previously led the successful buy-in of Office2office plc, with Grant Thornton’s advice, and its subsequent and flotation. Together we were able to conceive and develop the opportunity for the Spicers UK and Irish business to be acquired separately from the Continental European business. David Ascott, corporate finance partner at Grant Thornton, commented: “Ultimately a complex international deal was delivered creating strategic value for all concerned”.


Case study: Q&A Richard Swann, Investment Director, Inflexion Private Equity

How do support services businesses fit into Inflexion’s strategy?

Inflexion looks for niche growth markets, where we can invest in market leaders or novel businesses in that sector. So either a business that has a big market position, or one that is doing something different in the marketplace.

We look at businesses that have momentum in their sector. The other criteria that we look for is high margins, because high margins are a useful proxy for whether a businesses is getting it right, either in their operating model or if they have a high-value add service which the customer wants. Certain aspects of support services companies tick many of these boxes.

What particular types of support businesses do you target?

We seek out growth businesses with significant know-how – businesses that are successful not because they’re just a lower cost provider (though many do combine value-add with cost advantages), but because they have strong technical capabilities. For example, one of our recent acquisitions, Rhead Group, is an engineering

Inflexion is a leading independent private equity house that targets small to mid-market growth businesses. Its recent support services investments include Rhead Group, an engineering consultancy businesses that specialises in large scale infrastructure projects, and Phlexglobal, a healthcare document management company.

consultancy and project management business that serves several segments of the energy market, including gas, electricity, water and power generation. Its large-scale management skills and its unique market knowledge place it as the leading player to go to in this particular field. Other examples include Phlexglobal, which provides compliance services to the pharmaceutical industry. We liked this business because it has unique domain knowledge and it’s a specialist in what it does.

Buy-and-build is an important strategy for our respondents this year. How does Inflexion approach buy-and-build when growing its portfolio businesses?

We routinely do follow-on acquisitions and roughly two-thirds of our portfolio will make an acquisition in the first 18 months of our ownership. Unlike some houses we don’t start with a completely blank sheet of paper and try to buy-and-build from nothing. We look for a significant existing business and look to build equity value by adding complementary businesses – not necessarily competitors, but companies that add further

functional or geographic capability. If you look at our recent acquisition of Rhead, we’ve already made two complementary acquisitions, JPA Associates in Australia and OTC Optima in the UK, both of which expand Rhead’s geographic footprint and add to its capabilities.

Strategic buyers are expected to give private equity firms a lot of competition this year. What are your expectations for trade buyers?

Many large corporates have repaired their balance sheets. Growth in many of their core markets looks anaemic, and so they have begun to be more active acquirers. Talk to any corporate finance adviser and they will all tell you, there has been a re-emergence over the last few years of active trade buyers.

Looking forward support services will remain a very key sector for private equity. Support services is a very broad church and PE houses will continue to evolve and become more focused on the particular sub-sectors they find attractive.

Where is the smart money going in support services? 29 28 Where is the smart money going in support services?

Case study: Q&AClaudio Veritiero, Managing Director, Kier Services

Part of Kier Group plc, with its annual revenues of £2.2 billion and total workforce of 11,000, Kier Services is one of the UK’s premier support services businesses. Working largely through partnerships, Kier Services provides a broad range of specialist services to clients in both the public and private sectors, including facilities management (FM), social housing repair and maintenance, buildings maintenance, environmental services such as street and grounds maintenance, refuse collection and recycling and many others.

What’s driving business into the support services sector right now and into Kier specifically?

Firstly, many different parts of the support services marketplace are showing signs of growth and this is contributing to the uplift in the sector as a whole. Specifically, if you look at outsourcing of FM services, these markets are forecast to grow by 3% to 5% per annum over the next five years.

The second factor impacting on the sector is the changes in local and central government spending. On this level, spending cuts should drive outsourcing as a means to finding innovative solutions to service delivery whilst at the same time helping to drive costs down.

A third and important factor to consider is that when times are difficult, organisations recognise that they need to work out what they’re good at and decide where they want to focus their time and effort. In other words, businesses and organisations are focusing right down to the core competencies. As a result, when it comes to

back office functions, cleaning or building maintenance – things that are not core competencies – they will be more inclined to consider outsourcing when they can see a clear benefit.

Where does Kier Services fit within the broader support services sector?

It all depends how you define support services. It is a very broad sector and we define our element of the market more narrowly than others might. For example, we are not in the business process outsourcing (BPO) arena, which on its own accounts for quite a large slice of the market if we’re using a broader definition of support services. At Kier we have real and proven strengths in delivering support services around the built environment – the management of buildings and surrounding infrastructure and those environmental issues that impact upon them and the communities in which they are located.

A lot of our private equity respondents describe the UK support services sector as fragmented – do you take the same view and where do you see the most room for consolidation?

This varies across the country. The markets in which we operate are generally more consolidated at the top so if you look at housing maintenance, for example, we are one of three or four large national players all of which have quite a long tail. Likewise, if you take environmental services – waste collection, waste processing, waste management or recycling – there are a quite a few big players but you don’t have to go too far down to find some fragmentation. In FM, you will find a much more disparate picture with lots of small businesses providing very local services. On the whole, I would say there is scope for consolidation within the marketplace, which will drive efficiencies and service quality.


What role has private equity traditionally played in the support services space?

Over the years, there have been many examples of where private equity has gone into a business and, whether by tidying them up, installing new management or putting in a robust growth strategy, brought them back to market with more subsequent value than when they went in.

How would you describe your primary client base and do you see it changing?

Historically, Kier Services has grown predominantly through the local authority marketplace and, in particular, on the back of developing innovative partnership models, an area where we have a proven track record. We have a number of strategic joint venture (JV) arrangements with local authorities across the country, for instance with Sheffield and Stoke City Councils, North Tyneside Council in the North East and Harlow District Council in the south.

The JV model, which harnesses our commitment to service innovation with a comprehensive understanding of client needs as well as real community engagement, has been an important part of our growth over recent years. But throughout the local authority sector we have found other opportunities to grow our business from what it was two years ago and we believe we have the capacity and capability to continue doing that.

However, if you look at the FM sector as a whole, excluding social housing, three quarters of the value of the market lies within the private sector. At Kier Services our spread is probably the other way round so we are actively working to grow our private sector client base on the back of our robust operational infrastructure.

We have already generated a lot of new business, particularly with our FM offering where, although we may not be the biggest player we have a growing reputation for the quality of the services we provide and the innovative way we approach our work. The private sector has gone from being a relatively small part of our business to one approaching 20% and we see lots of potential for further growth.

In the social housing marketplace, about 45% sits directly with local authorities and the balance is with support businesses like ours. We are also extending our reach in the Housing Association arena where our relative market share is smaller but growing based on our wide experience of the social housing sector. As an example, we have just won one of the largest housing association contracts to come to market in recent times. We have a strong pipeline of other opportunities and are looking at how we can grow our expertise in adjacent customer segments.

What are your expectations for the next five-year horizon?

At Kier we have some clearly defined growth aspirations. In these challenging economic times we have strong finances and the expertise, experience and people to deliver outstanding services to clients across a broad spectrum of need. We have the resources, operational infrastructure and the ambition to grow and develop our markets and are confident that in the medium term the support services space offers every opportunity to enable us to meet our aspirations.


Announced Date

Status Target Company Target sub-sector Target Country Bidder Company Bidder Country

Seller Company Deal type Deal value £m

18/01/2012 C CPA Global Ltd Consulting/ advisory services

United Kingdom Cinven Ltd United Kingdom Electra Partners LLP; Intermediate Capital Group plc

Secondary buyout

950

31/08/2011 C i2 Ltd Business process outsourcing

United Kingdom IBM Corporation USA Silver Lake Sumeru Exit 305

17/04/2012 P The College of Law (legal education and training business)

United Kingdom Montagu Private Equity LLP

United Kingdom The College of Law Ltd IBO 200

02/05/2012 P CAP Motor Research Ltd United Kingdom Montagu IV United Kingdom Top Right Group IBO 175

30/06/2011 C Stewart Group Ltd Operational support United Kingdom Australian Laboratory Services Pty. Ltd

Australia Close Brothers Private Equity Exit 146

20/05/2011 C Pattonair Ltd Operational support United Kingdom Exponent Private Equity LLP

United Kingdom Umeco plc IBO 146

03/02/2012 P Pertemps Ltd Consulting/ advisory services

United Kingdom Lloyds TSB Development Capital Ltd

United Kingdom MBO 112

19/09/2011 C Eaton Towers (Undisclosed Stake)

Operational support United Kingdom Capital International, Inc. United Kingdom IBI 96

20/10/2011 C Quality Solicitors Organisation Ltd (Majority Stake)

Consulting/ advisory services

United Kingdom Palamon Capital Partners LP

United Kingdom IBI 80

06/03/2012 C Peverel Ltd United Kingdom Electra Partners LLP; Chamonix Private Equity

United Kingdom IBI 62

C = Complete; P = Pending

Quarterly data covers all announced private equity deals between 01/01/2005 to 20/04/2012, excluding lapsed or withdrawn bids, where the target dominant geography is the United Kingdom (UK) and the target dominant sector is Support Services. The table above captures transactions announced between 16/05/2011 and 16/05/2012.

Exit – Occurs when a financial institution, such as private equity firm or venture capitalist realises its investment in a company. This is usually achieved by selling its stake to a trade buyer or another financial buyer, or by floating the company on the stock exchange.

IBI (Institutional Buy In) – Initiated when a financial institution, such as a private equity firm or venture capitalist, acquires a stake in another company, often in conjunction with a trade buyer.

IBO (Institutional Buy Out) – Similar to an IBI, but in this scenario the financial institution, ordinarily a principal finance house or private equity firm, operates without a trade partner and usually acquires 100% of the target.

MBO (Management Buy-Out) – The acquisition of a company by its incumbent management team which again is usually backed by a venture capitalist or a private equity investor.

Secondary Buyout – A deal that represents an exit for a buyout to another private equity backed vehicle.

Top deals 2012 - year to date


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