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M&A boom in support services sector

06 May 2010

Grant Thornton predicts that support services will see M&A value balloon amid increasing competition between private equity and trade bidders

In Q1 of 2010, the total value of private equity investments in Support Services amounted to £1.1bn, which is already equal to the total value recorded in the whole of 2009, according to a Grant Thornton report called 'Where is the Smart Money Going in Support Services?' Competition is set to intensify in this sector in the coming months according to the corresponding survey of 40 leading private equity investors with experience of investing in Support Service providers.
Some 80 percent of the financial sponsors that back Support Services expect to see an increase in competition from trade bidders, while 72 percent expect the level of private equity investment in the sector to increase, according to the report which will be presented on 28 April.
"Although private equity houses have been investing in Support Service providers for more than a decade, we expect to see much fiercer competition in future sales processes. Both financial sponsors and bankers feel very comfortable investing in support services firms that demonstrate robust contracts and repeat business," commented David Ascott, Private Equity Partner at Grant Thornton.
Almost all respondents to the survey (97 percent) said that they planned to make an investment in Support Services over the coming 12 months.  In 2009, Support Services attracted 37 private equity transactions with a total value of £1.1bn. That value is almost eight times lower than in 2008, when Support Services generated 120 private equity deals with a total value of £8.4bn.
In Q1 2010, the strong recovery in the value of private equity investments in Support Services is not down to exceptionally large individual transactions, as the largest transaction was Advent's £274m takeover of Xafinity.  The most attractive subsectors within Support Services are Business Process Outsourcing ( including payment services, IT services, HR and payroll), Operational Support and FM, which were selected by 73 percent, 52 percent and 33 percent of respondents respectively.
"The outsourcing drive by both financial service providers and public service providers is attracting ever more investors. It is therefore not surprising that our survey identified Business Process Outsourcing as the most attractive subsector," explained Ascott.

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