Is finance starting to flow in support services?

Thursday, June 30, 2011 | Posted by: Grant Thornton
Categories: Financing , Thought Leadership | Tags: report, recruitment, funding, banking, public sector, financing, outsourcing, mid-market, Private Equity, refinancing, support services, David Ascott, facilities management, Alex Worters

Sentiment in the support services sector is slowly and cautiously turning positive, led by some strongly performing niches, but there are areas within support services that are still feeling the pinch.

Compared with a year ago, the mood in the UK’s mid-market is more upbeat with a cautious sense of optimism returning. However, while there may be signs of economic stability returning, the support services sector still faces significant challenges, not least of which are the increasingly complex conditions arising from major changes in both public sector budgets and procurement policies.

Providing further insight, we have published our latest report – Support services: The finance flow. Will money start moving in 2011? – which is also available for download.

This has been drawn from research by Mergermarket into the views of 200 CEOs and FDs on the challenges businesses face today, including growth strategies and funding options. 

Report highlights

• Support services remains a sector critical to UK economy, but faces significant challenges due to changes in public sector policies and procurement budgets.
• Despite caution, there are signs of improvement in financing conditions.
• 22% of the sample rated M&A as a high priority, suggesting a busy period of transactional activity.
• 70% of support services companies indicated that the banks remain at least as conservative as they have been in the past year or so, if not more so – a knock-on effect of tougher due diligence and extended deal timelines.
• Almost two-thirds of the companies surveyed have not looked into alternative sources of capital (versus less than half of the overall sample).
• Characteristics of the sector that are attractive to backers remain, ie contractual longer-term revenues and strong relationship-driven models are still attractive to funders, and the market for support services remains fragmented and ripe for consolidation.

David Ascott, Partner, Corporate Finance, added:

“Support services remains significantly dependant on public sector spending, which accounts for approximately 40% (or £82 billion) of support services revenues in the UK. Consequently, now is a decisive time for the sector with significant change occurring in both public sector budgets and procurement practices.

“Businesses exposed to this market will be deciding whether this heralds a real opportunity for increased outsourcing, or simply greater pressure on margins and service levels, and many in the industry will argue that private sector participation in delivery of public services is essential in achieving the required efficiency gains.”

Download your free report
For further information on these issues, please download the full report: Support Services: The finance flow. Will money start moving in 2011? 

You might also find these posts useful:

* Financing improves but mid-market remains frustrated [report]
* Insight: How can we improve the UK financing environment? [voxpops]
* Where is the smart money going in support services? [2010 report]