Upstream - The Newsletter of Incentive FM Group

Where are they now?

Jeremy WaudIf you look at the latest FM Top 50 league table there are few surprises at the top end with companies like ISS, Carillion, Interserve and Rentokil getting bigger and bigger. What is surprising is that they are achieving some of this growth through acquiring small to medium sized businesses as they continue on their quest to become truly multi-service providers and in some cases – just bigger, and for who’s benefit, I am not sure. For example look at Rentokil who in years past sold off several businesses but have recently acquired Modus FM and MSS Facilities Services, both of whom are frankly quite small and to people outside the core industry, perhaps unheard of even.

The result of this continuing consolidation is that mid market TFM companies with a turnover of anything from £10 million to £50 million are in short supply. In the past 12 months, in addition to the two mentioned above, Reliance FM has become part of Norland and Rollright have been sold to HSG Zander of Germany. Now we have a proliferation of large companies, with heaving management teams and in my view generally a lack of individuality or personality.

Don’t get me wrong, I’m not complaining because quite simply at Incentive FM Group we have less competition in TFM, Consultancy, Security and Cleaning as this trend continues and for us this is generally good. Indeed many customers don’t want to work with the larger players in any event – particularly if they have a contract value under around £5 million per annum as they know that they won’t get a good level of attention, particularly at executive level. Understandably the big players focus on their big clients – contracts of say £10 million per annum or more. Yes they like to play in the £150k - £5 million per annum contract value space but in fairness this is neither important business to them, nor are they properly structured to serve these clients in many cases.

From our point of view this means they are easy to beat as we are excellent at looking after business and clients of this size, whilst understandably we don’t have the infrastructure to handle the really large and often government sector contracts outside this envelope. As a result we have a strong pipeline in our niche, middle market sector and we are growing ahead of our five-year plan – long may it continue.

What I am particularly interested in is why is this change happening? - Is it cyclical? - The FM industry is a little too young to be able to identify robust annual trends, but it seems highly likely that in a few years time there will be a number of disgruntled would be entrepreneurs working at these large businesses who decide to leave and ‘do it better.’ That is after all what happened to me and our team when we decided to set up Incentive FM back in 2002, and look at us ten years later – a £40 million plus profitable business, top clients and fantastic staff team!

Although I do think that the FM Industry is one of the hardest to set up in from scratch, particularly if you are offering TFM - as we found out! Quite simply the overheads are horrendous in the early days and this might affect things moving forward. This paired with the cross marketing opportunities that TFM presents is probably why we are increasingly seeing companies in other markets such as construction, Quantity Surveying and back office process diversifying into TFM. I am sure that Private Equity Funds will find this an attractive and fertile market to lean into and leverage out of with ‘buy and build’ strategies for their investors. Typically the smaller operators in the FM market lack the access to expansion and acquisition funding that the Private Equity funds make their meat and gravy!

So in the meantime we will continue to be one of a very few medium sized businesses able to offer a fully self-delivered multi-service solution and more over do so with style and a level of management commitment and passion that is somewhere between unusual and non-existent in the market. Does that make middle market quality delivered FM services a truly niche market?

Jeremy Waud, Group Managing Director, Incentive FM Group