Selling a facilities management business

Facilities management is valued on two things that most owners never put a number to: how long the contract portfolio has left to run, and how much of the work you deliver yourself.

Everything else, including turnover, is secondary. A £30m business with a two year weighted average term and self delivered engineering is worth considerably more than a £50m business renewing half its portfolio next year through subcontractors.

What you are actually selling

An FM business is a contract portfolio with people attached, and both sides matter.

The metric buyers actually use

Weighted average unexpired term. Take every contract, weight it by annual value, and work out how long the portfolio has left.

It matters because an FM business is a set of contracts rather than a set of assets, and a contract approaching renewal is a contract that might not renew. A buyer paying five times earnings on a portfolio with eleven months left is taking a very different risk from one paying the same on a portfolio with three years.

Alongside it they will want the renewal rate: what proportion of contracts coming up for renewal in the last three years were actually retained, and at what margin. A high renewal rate at a falling margin is a different story from a high renewal rate at a stable one, and buyers read that distinction carefully.

Hard, soft and total

The three behave like different industries and price like it.

Hard FM, the engineering maintenance, prices highest. The work is compliance driven, the technical barrier is real, and self delivered engineers are genuinely hard to replace.

Soft FM, cleaning, security, catering, grounds, prices lowest. Low barriers to entry, high labour intensity, and margins exposed to every increase in statutory minimum wage.

Total FM sits above both, provided it is genuinely bundled rather than two businesses under one invoice. Bundled contracts are stickier, harder to unpick at renewal and worth more per pound of revenue.

What it is worth

Guide only. The spread inside any one row is wider than the spread between rows.

What changes as you scale

Indicative. Turnover is a proxy, the size of the earnings is what moves the multiple.

What drags the number down

1. TUPE liabilities nobody has quantified

Your people transfer in when you win a contract and out when you lose one. That creates inherited terms, accrued holiday, enhanced contractual rights and sometimes pension obligations that arrived with a contract years ago and have never been properly costed.

A buyer will quantify it. If you have not, the number they arrive at will not be one you like, and it comes off the price rather than being argued about.

2. Subcontracted delivery

A business that subcontracts most of its delivery is selling a management layer. It prices as one, because the buyer can replicate a management layer far more easily than a directly employed engineering workforce.

3. Wage inflation you cannot pass on

Labour is most of the cost base in soft FM, and statutory wage increases arrive annually whether or not your contracts allow you to pass them through. Contracts with no indexation mechanism are a margin problem a buyer will model forward.

4. Customer concentration

One contract at thirty per cent of revenue in a portfolio business is a serious discount, because unlike a project business the loss is permanent rather than a gap to fill.

5. Mobilisation cost that never got recovered

Winning a large contract costs money before it earns any. If the portfolio contains recent wins that are still absorbing mobilisation cost, current earnings understate the business. That works in your favour, but only if it is evidenced rather than asserted.

6. Bid capability held by one person

In FM the ability to win work is often a small bid team, or one person. A buyer is underwriting whether that capability stays.

Who is buying

National and international FM groups buying regional density or a sector specialism, because contract density is what makes FM margins work.

Private equity platforms consolidating regional providers, typically buying a hard FM business as a platform and adding soft services around it.

Building services and M&E groups moving into maintenance from the installation side.

Services groups assembling multi discipline capability so they can bid total FM rather than single services.

Almost all of them are buying self delivery and contract term. Turnover on its own attracts very little interest.

What to fix, and how long it takes

• Calculate and document your weighted average unexpired term. Days, and it changes how you negotiate
• Quantify the TUPE position across the portfolio, including inherited terms and pension exposure. Weeks, and it prevents the worst diligence surprise in this sector
• Get indexation into contracts at renewal. One renewal cycle, and it protects the margin a buyer is modelling
• Move work from subcontracted to self delivered where the volume supports it. Twelve to twenty four months
• Extend contract terms at renewal, even at a slightly lower rate. Two to three years, and it is the single biggest lever on the multiple
• Build the bid function beyond one person. Twelve months

The process

1. Valuation and portfolio analysis. Contract by contract, with term, margin and renewal history.
2. A market test through our 30 day market test, with your money back if the appetite is not there.
3. Approaching buyers, on and off market.
4. Offers and heads of terms.
5. Diligence. Contract review, TUPE population and inherited terms, renewal history, margin by contract, and the pension position.
6. Completion and handover, usually with client introductions across the portfolio.

Where to start

With the portfolio analysis, because it determines everything else. Our adjusted EBITDA calculator gets the earnings right, and ranges for adjacent sectors are on the multiples by sector page.

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