Codx Stock – Outsourcer Mitie bulks up with $340 mln Interserve purchase
Deal to be part funded by rights issue – CEO
Sales down just 12% in April, May
Rival Capita also says pandemic not as bad as feared
Shares up nearly 10% in early trading
Adds details on deal, CEO, analyst comment
June 25 (Reuters) – Mitie Group MTO.L said on Thursday it would buy rival Interserve’s facilities management arm for 271 million pounds ($336.74 million) in cash and shares, using its financial muscle to gain scale in Britain’s huge outsourcing industry at a time when others are struggling.
London-based Mitie, which has a smaller focus on the public sector than Interserve, embarked on a cost-savings drive to revive its fortunes since Chief Executive Officer Phil Bentley took over in 2016.
In results published along with the announcement, Mitie said its operations have proven resilient in Britain’s lockdown and performed better than previously expected, with revenue in April and May down just 12%.
“(The COVID-19 impact) is not as bad as we might have feared at one point,” Bentley told Reuters. “Even through the lockdown, we had 37,000 of our people working in clients’ offices in essential locations such as hospitals, schools and strategic assets.”
Interserve’s facilities arm had around 1.4 billion pounds in sales annually and would make Mitie around 50% bigger, Bentley said. The company also announced a 200 million pound rights issue to raise funds.
The deal’s shares were equivalent to 23.4% of the enlarged Mitie group, which already manages and maintains some of London’s best-known landmarks, together with a wide range of high-street and public buildings.
“The rationale is that we can add their revenue, if you like, to our sausage machine … if I can push through their contract margins at 10-12% through my sausage machine which is able to be scaled up, more of that profit will drop to the bottom line,” he said.
Mitie saw underlying operating profit of 86.1 million pounds for the year ended March 31, above analysts’ estimates.
($1 = 0.8048 pounds)
(Reporting by Pushkala Aripaka in Bengaluru, Editing by Sherry Jacob-Phillips and Patrick Graham)
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