G4S Plc (GFS) agreed to acquire ISS A/S for 1.5 billion pounds ($2.4 billion) to create the world’s biggest integrated security provider and office cleaner for clients such as Citigroup Inc.
G4S plunged as much as 22 percent, the most since it started trading on the London Stock Exchange in 2004, after saying in a statement that it plans a 2 billion-pound rights offer to fund the purchase. G4S is buying ISS from EQT Partners and Goldman Sachs Capital Partners for a total value of 5.2 billion pounds, of which 3.7 billion pounds is assumed debt, Chief Executive Officer Nick Buckles said on a call today.
G4S is playing into a trend for customers to bundle different kinds of office-upkeep and security services into a single contract. With the purchase, the Crawley, England-based company gains access to the 500 billion-pound facilities- management market, where the ability to offer other services alongside security can boost expansion by 1 percent to 2 percent, Buckles said.
“G4S has a good track record on acquisitions and the move to an integrated facilities services offering does have some logic,” Robert Plant, an analyst at JPMorgan Chase & Co. (JPM) with a “neutral” recommendation on the company, said in a note.
The British company fell as much as 61.2 pence to 221.1 pence in London, cutting its market value to about 3.18 billion pounds. It traded at 225.8 pence as of 2:47 p.m.
G4S expects an earnings-per-share boost of at least 10 percent from the deal, Buckles said. Combining the businesses could result in a “couple of thousand” job cuts, he said.
“We saw all our top 12 shareholders in person or on the phone and they all were positive about the deal,” the CEO said.
The transaction will create a global services provider with 16 billion pounds in sales, generate 100 million pounds in annual cost savings by 2014 and drive growth in emerging markets, G4S said. The price the U.K. company will pay is equal to 8.5 times ISS’s earnings, according to the statement.
The U.K. company was formed seven years ago through the merger of Group 4 Falck A/S and Securicor Plc. G4S and Copenhagen-based ISS have separately made hundreds of smaller deals to fill geographic holes in their coverage, absorbing minor competitors that struggle to compete on scale and breadth of service.
G4S competes in security with Securitas AB (SECUB) of Sweden, which has also made bolt-on acquisitions in past years to expand its presence in areas such as guarding. Securitas tried and failed this year to buy Swedish surveillance-system maker Niscayah AB, which ended up with Stanley Black & Decker Inc. (SWK)
The security industry has grown as companies such as G4S take on work such as guarding major sports events and conventions. Buckles said in August that the company will take on more work from governments, and that G4S is benefiting because security is an expense that’s “very difficult to cut.”
“This is a real game-changer on all metrics,” Buckles said on today’s call. “We don’t have a direct competitor that can deliver the range of services we can.”
ISS retreated from plans earlier this year for an initial public offering because of weak capital markets, and the company had said it might revive the IPO. Apax Partners LLP in January dropped a 6.4 billion-euro ($8.87 billion) bid for ISS, according to two people familiar with the talks at the time.
ISS is the world’s fourth-largest private employer with more than 500,000 workers. The company has bought 154 companies since 2000, making it the Nordic region’s most active buyer in the past decade, according to data compiled by Bloomberg.
Deutsche Bank AG, Royal Bank of Scotland Plc and HSBC Holdings Plc (HSBA) are underwriting new debt facilities. Deutsche Bank and Greenhill are joint advisers to G4S, alongside HSBC and RBS Hoare Govett.
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