The North American facilities services
market generated approximately $23 billion
in 2008 and is expected to grow at
an annual rate of 11 percent through
2015. In addition, facilities services
should exhibit not only growth for the
foreseeable future but also lower volatility
or even counter cyclicality due to significant
cost-saving and quality benefits
provided.
The recent economic downturn has
forced companies to reassess their operating
models in unprecedented detail.
As revenue and profitability vanished
overnight with almost no visibility as
to when normalized levels would return,
management teams examined the
cost structures of their organizations
looking for any opportunity to cut costs
and increase the organizations’ focus
on regaining profitability.
As companies battened down the
hatches to survive, they became more receptive
to outsourcing as a means to reduce
costs and increase focus on core
competencies. One of the primary areas
of focus to streamline operations has been
the outsourcing of facilities services,
which includes the transfer of responsibility
for building operations and maintenance,
janitorial services, security,
environmental management and other
services.
The primary factors driving companies
to outsource facilities services include:
I) cost reduction (particularly given the
meaningful percentage of corporate
costs related to facilities);
II) increasing focus on core competencies;
III) added service quality, reliability and
functionality;
IV) increased building systems and
automation complexity;
V) growing focus on compliance; and
VI) maximizing operational efficiencies.
While facilities services are a critical
factor to efficiently and effectively run and
operate a business, they don’t result directly
in revenue opportunities or confer a
competitive advantage. The cost of maintaining
a full staff utilized for facilities
services drops directly to the bottom line
and is generally considered a cost center.
According to Frost & Sullivan, outsourcing
those services typically results in cost
savings of 15-20 percent.
Focus on Core Competencies
Outsourcing facilities services allows
management more time to focus on the
core objectives of the company without
becoming sidetracked with facility issues
that arise internally. During recessionary
times, this becomes extremely critical to
ensure the company remains in a competitive
position, provides the highest level
of customer service to its clients and is
able to capitalize on the market up-tick
when it returns. But, even in strong economic
conditions, facilities services are
generally considered a distraction.
In many organizations, facilities services
lack the resources and management
attention to consistently improve
operations and maintain high levels of
performance.
Increased Functionality
Competition among facilities services
providers has resulted in multiple innovations
within the industry. Providers have
focused on offering significant cost savings
to their customers by relentlessly
searching for efficiency gains.
However, they have also started to
compete on quality of services provided
and increasingly offer a broad range of
technological solutions to enhance their
customers’ awareness of their facilities,
reduce operating costs and provide more
flexibility.
Increased Complexity
Sophisticated building systems are becoming
increasingly complex and automated,
requiring third-party expertise
with a focus on constant workforce skills
upgrades.
Focus on Compliance
Facilities services providers have the
expertise to better manage the increased
compliance risk resulting from ramped up
safety and environmental regulation.
Maximizing Operational
Efficiencies
There is strong focus by industrial customers
on achieving higher uptime for
building and capital equipment and on improving
overall facility performance in the
constant battle to be globally competitive.
Secular Trend Toward
Consolidation
The strong fundamental benefits of outsourcing
facilities services will continue
to drive expansion of facilities services
providers through both up and down
economic cycles. In addition to organic
growth, a number of providers will
grow via acquisition as we see a number
of factors pointing toward an overall
consolidation of the industry.
Client companies are the key drivers
of consolidation as they are increasingly
turning to providers that offer a
bundled service approach to minimize
complexities with multiple vendors.
While facilities services are outsourced,
the management of these services is
still required. Therefore, utilizing a onestop-
shop has substantial benefits for
customers, including:
Economies of Scale
There is a substantial advantage in aggregating
services to maximize cost savings
for companies. This can be achieved
through the purchase of materials required
to perform services or efficiencies gained
through investment in technology.
Single Point of Contact
A single point of contact allows a company
to minimize the time required to coordinate
services, operational issues,
scheduling or emergency responses. This
approach eliminates the time required to
track down the right person, typically
someone different by geography or type of service offered, and streamlines the
information flow resulting in enhanced
reaction times and customer service.
Consistency
Having one provider ensures greater
consistency of service and greater vendor
accountability across all geographies in
which a client operates.
Single Billing
A single bill reduces complexities by
offering one statement versus multiple invoices
received at various intervals by location
or by service performed, thus
minimizing the need to consolidate payments,
terms, etc.
The response for facilities services
providers to meet ever-expanding requirements
of global customers has been
increased acquisition activity. The ability
to support global customers provides a
meaningful competitive and pricing advantage
relative to local and regional
providers. Hence, facilities services
providers have sought to expand their
service offering and footprint, in many
cases through acquisitions. Examples of
this trend include Eurest Services’ (Compass
Group) $90 million purchase of
KIMCO in December 2008, ABM’s
$365 million acquisition of OneSource
in November 2007 and United Group’s
$408 million purchase of UNICCO in
September 2007.
M&A activity was down in 2009 approximately
17 percent overall while
facilities services transactions declined
a slightly less significant 13 percent.
While we expect M&A volume for facilities services providers to be buoyed
by the continuing response of providers
to global customer requirements, we
sense that private company owners
have been reluctant to lower valuation
expectations given relatively strong
fundamental performance.
While we’re uncertain as to what is in
store for the economy in 2010, the underlying
growth factors in the facilities services
industry will continue to drive a
secular trend towards consolidation and
remain an attractive space for both strategic
and financial buyers. Luke Webb is a vice-president at Lincoln
International, which specializes in
merger and acquisition services, debt advisory
services and valuations for companies
involved in middle-market transactions. He
can be reached at (312) 506-2747 or
lwebb@lincolninternational.com.
Waxie Acquires Five Star
WAXIE Sanitary Supply has announced
its recent acquisition of Five
Star Sanitary Products, a distributor
of janitorial supplies in Colorado
Springs and Pueblo, Colo.
“We are excited about our new locations
in the State of Colorado as this
purchase will strengthen our position in
the state,” said Charles Wax, president
and CEO of WAXIE’s Enterprises, Inc.
For the past 65 years, WAXIE’s mission
has been to become the industry
leader of sanitary supply distribution. The
acquisition of Five Star brings WAXIE
one step closer to the accomplishment of
that goal.
This achievement will bring the two
companies together under the leadership
of WAXIE’s General Manager,
Mike Carmical, utilizing one system to
service customers in the entire state of
Colorado.
“We want to link Five Star’s tenured
employees and local knowledge with
our technology and proven success in
the industry” said Charles Wax, “and
look forward to the strength it will
bring to our Denver team.”
The acquisition brings WAXIE’s total
number of employees to over 800.
Based in San Diego, WAXIE Sanitary
Supply is America’s largest family-
owned distributor of sanitary
maintenance supplies.
