Disclaimer : Contracts data is based on public available information. Due to Covid19, many of the contracts could be extended or re-procured.
The businesses across the globe took a hit during the last two years when the pandemic was at its peak. As we complete two years of those turbulent times amid new variants of virus as well as the pace of vaccinations gaining momentum to build immunity against the virus, we look at how the business particularly the Facilities management companies reacted as well as the new emerging outlook for the industry in UK.
Looking back the FM outsourcing market value decreased by around six percent in 2020, largely due to Covid-19 and the lockdown measures introduced in an attempt to halt its spread. Although FM contracts have continued to be issued during the last year, the Industry has taken a hit, with budgets and investment decisions negatively impacted.
*********The Market size decreased during 2020 as is evident by the figures given in the graph.
The effects of the lockdown measures introduced by the government across the country has had a variable effect on several key sectors availing outsourcing services from the FM Industry Players. The impact has been high on some sectors in comparison to others. The key drop has been seen in the management of Office spaces owing to the direct bearing from the lockdown. The central government contracts also see a visible dip during this time.
Other Notable examples include retail, leisure (e.g. gyms and sports stadiums) and the hospitality industry, i.e. pubs, cafes and restaurants. Meanwhile, the curtailing of international travel has also adversely affected end-use FM sectors such as hotels.
*********Sectoral comparison of FM Industry for 2021 vis-à-vis 2020
Prior to last year, the bundled outsourced FM market had experienced a relatively steady growth, with the exception of 2017 due to Brexit uncertainty, however, it also took a hit during the last two years of Covid.
Some facts about the FM industry in UK will help us uncover the state of the businesses through last one year.
- Typical punitive contract structure, EBITDA margin erosion (as low as 3%), high CAPEX and OPEX are common factors in the FM industry producing high stressed assets.
- Providers rightly are spending more time in fixing operations. Lucky few who have fixed their operations are successfully mining their existing accounts by cross selling and upselling more services.
- Even the providers who have grown through acquisition in the past are constraint due to poor cash position with integrations taking longer than expected.
- Gone are the times of market intimidation – Very few FM providers have new business win rates above 50% and retention above 80%. Some running as low as 10%.
- Many have stopped measuring tender success and continue to approach the market reactively.
- Any provider can be displaced from their contract with the right strategic approach.
As the impact of lockdowns was felt and had a direct impact due to work force not able to reach office and the offices remaining closed, several new trends emerged in the FM outsourcing sector which will have a lasting impact on the buyer behaviour as well as the way businesses realign accordingly. Some of these changes can be highlighted as under:
- Digital evolution -The FM market leaders understand their capabilities and are willing to align their digital strategies to the revenue growth strategy. Many Companies providing integrated FM services talk about being digital that normally ends up being hiring a person or a team to tackle the problem. The leadership still keep operating the old fashion way.
- Outdated buyer and customer experience – Buyers have more power than ever, and their preferences have changed more in the last five months than the previous five years. This has made retention the new growth as market leaders go back to the base for growth. While laggards are focused on incremental improvements to the customer journey, market leaders have taken a blank-page approach to designing processes that provide a differentiated experience.
- Virtual sales – During the lockdown period, substantively all B2B sales have shifted to virtual. This is having a permanent impact on how buyers want to interact and will continue to shift how market leaders allocate resources. We are seeing that Accelerators are investing 12% or above of their revenue in marketing (vs 8% for those in the Observer camp and less than 5% for the Survivors).
When does the action begin on grabbing these upcoming deals
The M&A within the FM Industry also saw a dip in the new deals compared to the previous years. In comparison to around 750 deals in the industry since 2014, there has been a clear break with last two years recording around 70 M&A deals. Lockdown of the markets had a significant impact on M&A deal volumes in Q2 as well. M&A spanned a range of sub-sectors: building maintenance/M&E – consistently active in recent years – as well as compliance, cleaning and catering. Some key deals during the covid times have been listed below:
The Overall FM deal flow in H1 2020 fell over 40% compared to the same period in 2019.
- The most talked about deal during 2020 was the takeover of Interserve’s Facilities Management business by Mitie for an estimated £190 Million.
- The other notable M&A deal during 2020 was Allied Universal’s acquisition of G4S during the 4thQuarter for a disclosed amount of £3.8 Billion.
- Bidvest & Noonan, part of The Bidvest Group, engaged in a number of deals with six acquisitions in the past two years. The acquisitions included Amber Support Solutions, Cordant Services, Ancove, Lynch Interact, Axis Group and Incentive Lynx Security.
- Reconomy which is a provider of outsourced, asset light services topped the list in the M&A deal makers with six acquisitions. The transactions included acquiring of :
- Advanced Supply chain group (ASCG)
- ReBound
- Eurokey Recycling Limited
- Reverse Logistics Group (RLG)
- Water Source Limited
- ACM Environmental
The path ahead..
- The UK FM market has rapidly fragmented and shifted, resulting in a growing polarisation of ‘winners’ and ‘losers’ depending on providers’ market positions and their ability to identify changing market dynamics and quickly adapt accordingly.
- For those able to identify on-trend influences, clearly plan and implement exit strategy of the isolation/furlough, exploiting market growth of 10% or above the next four years is a realistic target. For those FM providers less able to recreate quickly, identify trends and adapt, the number of pitfalls in the market continues to grow.
Creating the 2022 plan
- The simplification of the below three types should allow one to have a very pragmatic approach to prepare for revenue growth in 2021 and beyond.
- Survivors – 100% defence: things have largely overcome them, both from an industry perspective and how they’re running their go-to-market strategy.
- Observers – Tactically reacting companies who are faced with uncertainty; trying to figure out what to do.
- Accelerators – The camp that you want to be in as a market leader. What these companies have done is review key demand drivers and their growth engine, and they are now making agile bets on how they mobilise the organisation.
- So as an Accelerator, how might you know you are different than those that are observing or surviving? You jump on your demand drivers and you are making key bets on those market winds that can stimulate your organic rate of growth.
- Survivors, in contrast, had gravity issues that they could not control. But Observers have a hidden pocket of opportunity, they can leverage the moment and fast-follow the market-leading Accelerators who have already moved with clarity and certainty.
If you are an incumbent looking to renew or challenger looking to displace the contract then drop me a line – baskar@baachu.com to discuss your sales growth opportunities, goto market and renewal bid strategies