Business Beginnings

18 March 2011

Facilities management was largely unknown 25 years ago, but now it has grown into a significant business sector that not only supports financial sector organisations but is itself a focus of their business activity, as Mike Daniels observes

IT WAS A SIGNIFICANT YEAR FOR ME as my daughter was born and I changed jobs. It was also a significant year in the wider world. The space shuttle Challenger exploded shortly after take off watched by people live on television around the world; the internet mail access protocol was defined which opened the way for E-mail; and in the same year the human genome project was launched to understand the human makeup enabling great advances in the treatment of many illnesses. The worst ever nuclear disaster occurred at the Chernobyl nuclear power station and in the UK Bovine Spongiform Encephalopathy, more commonly known as mad cow disease, was identified.
In the world of finance the FTSE started 1986 at 1.412,60 and finished it at 1.679. The London Stock Exchange changed the basis upon which shares were traded, known famously as ‘the Big Bang’. Although a rocky start, Big Bang was in fact successful as it eventually cemented London’s place at the centre of the world’s money and capital markets.
The Thatcher administration had been in power for seven years; Nationalised industries were being privatised and wealth was being created from floating names like the Halifax and Abbey National on the stock market. The financial markets had just about heard of names like Goldman Sachs - who were not the force they are today - and Wall Street’s most famous corporate raider – Gordon Gekko had yet to emerge from Hollywood.
In 1986 US investment banks aspired for greatness but had yet to achieve it in London. Instead it was the Merchant Banks such as SG Warburg, Schroders, NM Rothschild, Samuel Montagu, Morgan Grenfell and Hill Samuel who were the powers in the City.
It was with Hill Samuel Merchant Bank that I had just started my new job as a Manager in the corporate wholesale banking team. The office was based in Wood Street in the City. I find it interesting to note that apart from the church tower in the middle of the road and the police station, not a single building that stood there in 1986 exists today.
Dawn of FM
I had no mobile phone, no Blackberry, no computer on my desk and a tea lady served me tea and biscuits every afternoon at three o’clock. It was a very different world and one where the dawn of a coherent facilities management industry was just beginning. If you were to take a straw poll on the street in 1986 I doubt you would find anybody who would know what facilities management (FM) was – let alone name some of the names providing such services at the time.
In fact some of today’s FM companies did not exist at all 25 years ago, and they came from very different backgrounds.
● MITIE was still a year from being formed and two years from listing on the stock exchange
● Serco was known as RCA Services Limited, a legacy from its days as a company that supported the country’s growing cinema industry in the 1930’s
● Carillion was still 13 years from existence following the demerger of Tarmac Construction
● OCS was known as Office Cleaning Services and did not provide the One Complete Solution which represents its name today.
Considering the current political environment, it is ironic that cost-cutting initiatives in the 1970s and 1980s helped to open up the outsourcing market, and in turn lay the foundations for the FM sector in the UK. The 1990’s saw substantial growth in companies contracting out non-core operations, and over the past 10 years the sector has seen a move towards the provision of a ‘bundled’ service delivery and Total FM contracts. The demand for outsourced bundled facilities services has also been growing steadily in recent years within both central and local government.
Barclays was the first UK bank to offer a dedicated team of specialist client managers to work with the sector in 2001. As FM changed and innovated, Barclays embedded itself within the sector and deepened relationships with clients. FM companies have over the past 10 years broadened their offering to provide more sophisticated solutions and a number have grown from single service providers to the major global companies of today.
Acquisitions
As providers have broadened their reach in terms of services and internationally, M&A activity has naturally increased. The sector has seen its fair share of deals during recent years.Memorable deals include the 2009 acquisition of Dalkia’s British arm by MITIE, enhancing the Group’s integrated solutions offering. Interserve plc has made a number of acquisitions over the years, most recently expanding its equipment services operations into the USA by acquiring CMC Construction Services, and Carillion became one of the UK’s biggest support services company following the acquisition of Mowlem.
Private Finance Initiative/Public Private Partnership became an integral part of large scale projects for major infrastructure and public facilities, providing an additional sphere of activity for some service providers. This has slowed more recently due to changes in Government spending but will likely come back on stream as pent up demand for infrastructure spend rises.
Regulation has also been one of the key drivers for growth in the industry. Green Building and Energy certification, UK Building regulation and certification, health & safety legislation and the sustainability agenda are a few key areas that have presented opportunity for the FM sector.
Interest rates
One other major stark difference to 1986 is Base Rate. In March that year rates were 11.50 percent which puts in perspective the relatively low cost of borrowing enjoyed by the business community during recent years.
FM will continue to be an attractive sector to financiers, and efficiently run businesses with quality management will continue to obtain financial support from banks. As for me, I enjoyed reflecting on the first 25 years of PFM’s existence and look forward to doing the same again in 2036!
● Mike Daniels is Head of Business

The next 25 years?
●The sector is still relatively young but maturing and there is good potential for growth as the public sector continues tooutsource key contracts. Carillion for example provides fully-integrated FM services for the whole of the HMRC estate, more NHS hospitals in the UK than any other company, and the Ministry of Defence (MoD) is their largest customer.
● In the early years the full benefits, and challenges, arising from the Government’s austerity measures will be felt.
● An increased desire for international reach by FM companies to diversify and work successfully with global clients.
● Increased consolidation, partnerships and collaboration between smaller FM providers.
● Further embedding of FM as an integral part of strategic planning by private/public sector.
● The UK market for FM is expected to grow around 12 percent (£135 billion) during the next five years.
● It is also anticipated that the ‘Total FM’ sector will be worth around £10.9 billion – a 20 percent increase on today.
It is likely that bundled services contracts will continue to drive the market over the next few years.