FACILITIES MANAGEMENT UK MARKET OUTLOOK

Transcription

1 FACILITIES MANAGEMENT UK MARKET OUTLOOK BDO MERGERS & ACQUISITIONS 2016

2 INTRODUCTION Welcome to the latest edition of BDO s Facilities Management sector update which provides current insights into how FM is evolving from a people business to a people and data business. CONTENTS INTRODUCTION 2 EXECUTIVE SUMMARY 3 CLIENT DELIVERY MODELS 4 MARKET PRESSURES 6 M&A TRANSACTIONS REVEAL MARKET OPPORTUNITIES 8 RISE IN BUILDING TECHNOLOGY AND REGULATION FUELS DEALS The current UK Facilities Management market is one of the most challenging ever for outsourced service providers. Relationships are becoming more strategic and less transactional which presents opportunities for investment to innovate and drive change. This report by BDO examines the sentiment, changes in business models operating in the facilities management industry and developments in M&A. SATVIR BUNGAR 10 Head of Facilities Management Sector BDO LLP +44 (0) [email protected] TECHNOLOGY AND INNOVATION ARE DRIVING CHANGE IN FM 12 BDO LLP 14

3 FACILITIES MANAGEMENT UK MARKET OUTLOOK 3 EXECUTIVE SUMMARY The outsourcing of everyday activities required for businesses to function has led to the growth of a 11.9bn Facilities Management ( FM ) market in the UK. Whilst non-core, these functions are often critical to the operational and reputational performance of companies. However, the current UK FM market is one of the most challenging ever for outsourced service providers. Relationships are becoming more strategic and less transactional which present opportunities for investment to innovate and drive change. Our analysis of M&A transactions reveals that just over half of deals between January 2014 and March 2016 were of Building Management Systems, M&E and Compliance services businesses, signalling growing opportunities in regulatory-driven markets and exciting developments in building technology which aim to revolutionise service delivery. In addition, new listed entrants were noted, such as Marlowe plc and Bilby plc which are undertaking a buy and build strategy in many areas. Despite the pressures faced by FM players, our clients have muted optimism for the year ahead, and according to IBIS, the market is expected to grow by 3.2% Compound Annual Growth Rate over the next five years to reach a value of 13.9bn in Private sector demand is expected to be the primary driver of growth, while the public sector is likely to remain a challenging market. Our clients see a wealth of opportunity in the sector, including stickier Total FM ( TFM ) contracts, the development of strategic relationships and brand, and initiation of new service lines. In this highly competitive environment, operators see an ongoing need to exceed client expectations: looking at how they can run the business more efficiently, presenting new ideas, new service lines and continuing to challenge the status quo. Market consolidation is inevitable and there is a great opportunity to add both technological solutions and geographical presence, as well as delivering a step change in cost reduction through economies of scale. For example, there is great appetite for investment in smart metering and telemetry, smart phones, smart watches and the analysis of all the data these generate. The possibilities derived from smart analysis are fundamentally changing the industry and the services provided by FM players, as they evolve from people businesses to people and data businesses. Companies need to act now to avoid being left behind. FIG 1: TRANSACTIONS VOLUME BY SERVICE LINE Q Q Q Q Q Q Q Q Q Q Q Integrated services Soft services Hard services 278 transactions completed between January 2014 and March 2016, with a steady rising trend overall, quarter on quarter saw 137 transactions, a 43% increase on M&A growth has been fuelled by hard services, which accounted for 77% of transactions overall.

4 4 FACILITIES MANAGEMENT UK MARKET OUTLOOK CLIENT DELIVERY MODELS CLIENT DELIVERY MODELS ARE EVOLVING TOWARDS STRATEGIC PARTNERSHIPS The potential for cost-savings has been the primary driver of contracted-out FM services. Figure 2 illustrates how the cost advantage can be achieved. The delivery of a single contract has quickly evolved into bundled services running alongside each other, easing the administration required by the client. The bundled delivery model has further evolved towards Integrated or Total FM ( TFM ) which promotes skill sets and added value, where the client is offered a single point of contact with the service provider, who is responsible for managing a large number of facilities services. Today, the FM industry has developed to offer increased value for customers as success is increasingly measured by the way things are done: Contracts have evolved, moving from input based (e.g. headcount) to output based (e.g. 100% up-time for building) Transfer of risk to the FM provider has become more common, valued by customers given increasing regulations regarding labour conditions and compliance Innovation is increasing: for example several FM companies have developed software to give real time data to customers about their assets (such as cost and performance). Most FM relationships are becoming more strategic and less transactional, with some embedding themselves more closely in their customers operations through the integration of asset management. As shown in Figure 2, this evolution towards a people and data business model adds further value, as data-led services typically return higher margins and create valuable insights into client organisations. The FM delivery model is further evolving in the public sector with joint ventures becoming more common. With austerity applying steady pressure, local authorities are looking to these alternative models, which promote collaboration while ensuring that profits made are returned to the public purse. However, this is not a simple evolution: in the uncertain market environment, there are benefits to keeping services in-house, bundling them, or using a TFM provider, depending on current business priorities. These in turn have their own unique set of challenges and financial implications, as explored overleaf in Figure 3. Whichever delivery model is deployed, it is apparent that strategic relationships are fundamental to the success of outsourced FM providers: relationships at boardroom level can make the difference between winning and losing a bid. A good relationship at senior management level will also help when issues arise. A number of Directors we speak with have recently restructured their operations to ensure that there are strategic as well as operational touchpoints with clients, and some have stripped out layers of management to ensure that any Director leading a bid subsequently manages any escalation points. Good relationships can help relieve pressures on FM businesses, opening doors for tricky conversations around necessary price increases. Relationships handled well can lead to growth, for example, Mitie plc started to work with Rolls Royce some 20 years ago on a small scale cleaning contract, and are now their single supplier of FM services across Europe. FIG 2: OUTSOURCED COST ADVANTAGES TO A STRATEGIC FM MODEL 100% COST TOTAL FM ADDED VALUE VALUE PEOPLE AND DATA BUSINESS TAX DENSITY EFFICIENCY PRODUCTIVITY MARGINAL COST PEOPLE BUSINESS EXAMPLE SERVICES: Predictive maintenance Asset management Energy management Sustainability management Space optimisation Risk management Building lifecycle management ACTIVITY DIVERSIFICATION

5 FACILITIES MANAGEMENT UK MARKET OUTLOOK 5 FIG 3: BENEFITS, CHALLENGES AND FINANCIAL IMPLICATIONS OF CLIENT DELIVERY MODELS DELIVERY MODEL SERVICE BENEFITS PROVIDER CHALLENGES FINANCIAL IMPLICATIONS IN-HOUSE DELIVERY MODEL Staff continuity Ongoing opportunities to improve service delivery Ongoing service delivery and standards generally accepted by customers. Wage inflation due to recent legislative changes risks retention of key staff and skills Limited specialist resource in some services Multiple management layers can slow decision making Less able to deliver change quickly and effectively Access to intelligent software that can accurately measure and analyse spend pattern levels Minimal cost to change Value for money a regular challenge Limited opportunities to unlock procurement savings Less agile in delivering organisational agenda. Risk of redundancy. BUNDLED CONTRACTS (OR SINGLE SOURCED SERVICE) Increased expertise in all services Meets specified targets Less operational focus required TUPE benefits, i.e. staff and management costs removed from financial performance Service improvement a priority Benchmarking becomes possible Reduces the risk to continuity of service. Multiple engagement lines required with providers Single service providers can become commoditised offerings and be very price driven Trend towards shorter contracts Less flexibility and control over service delivery Consistency of service amongst service providers Possible duplication of effort Single solutions will be challenged due to the drive for technology to enhance transparency around delivery Ongoing innovation limited Procurement programmes require investment in management resource and can be costly Duplication of contract, management time and costs with several providers Bundling needs may not be available amongst certain providers. Low barriers to entry Difficult to deliver strategic FM. TOTAL FACILITIES MANAGEMENT Tailored design improves FM service delivery Scope for innovation and longer term savings through continuous improvement initiatives Access to a mature deployment model Contracts tend to be longer and stickier due to closer, partnership-type working Barriers to entry are high and further strengthened by technological advances amongst large players Access to providers IP and data capabilities allows forecasting and smart analysis around when to invest in capex, for example Enhanced MI reporting benefits Robust approach to contract negotiation Greater experience on TUPE matters Transfer of risk makes TFM attractive to local authority clients Synergies can be made, so increasing margins First generation outsourcing has huge demands on quality information to ensure bid success A more robust client relationship management approach required with enhanced KPI reporting tools Complex contracts, interaction with client transitions into a partnership Flexibility of the model Transfer of risk to the service provider; enhanced staff risks and legal rights, including TUPE requirements Can become reliant on one service provider. Increased legal costs given more onerous contractual documentation Cost of bidding is much higher due to increased sophistication and complexity of bids Investment in KPI reporting tools expected Enhanced technology and audit capabilities required to ensure data protection standards are met Can apply supply chain rationalisation and incentivisation strategies to drive savings. Greater career opportunities for staff.

6 6 FACILITIES MANAGEMENT UK MARKET OUTLOOK MARKET PRESSURES The FM market is subject to a range of pressures which create challenges for service providers NEW ENTRANTS INCREASE Barriers to entry to the FM market are relatively low, and in spite of the tough business environment, more players are entering the market. Sectors are converging as companies look to provide a broad range of property related services to their clients, resulting in new entrants to FM from adjacent sectors, and increasing competitive tension. M&E and technical services contractors have integrated themselves into the FM sector, also construction companies, such as Wates Group Ltd, which have been attracted by less volatile revenue streams, positioning themselves to offer FM services over the operational lifetime of a newly constructed building. An example of a new entrant from an adjacent sector is utilities infrastructure company Fastflow Group Ltd s acquisition of DW Contractors Ltd in 2014, a 25m turnover provider of property maintenance and refurbishment services. US-based ABM Industries Inc also entered the sector, with the acquisition of 40m turnover GBM Support Services Group Ltd, a platform for the company to expand internationally with new and existing clients in the retail, leisure, public sector and commercial segments. The acquisition of 54m turnover Westway Services Ltd followed in 2015, allowing ABM to expand into adjacent markets, opening up cross-selling opportunities and the ability to deliver complete solutions, including deep technical services. COMPETITIVE ENVIRONMENT Our clients currently cite competition as the biggest issue they face in the FM market. There is a high volume of players, competition on pricing is fierce and margins are slim. The trend towards TFM is driving more players to extend their service lines, often by acquisition, to offer a broader range of services and expand geography. A number of international business have extended their reach to the UK recently, including idverde SAS, a French landscaping business, which acquired 50m turnover The Landscape Group Ltd in March 2015, and consolidated this with Quadron Services Ltd a year later, growing to a 90m UK business. The Company continues to explore new opportunities to become Europe s leading green services specialist. We expect to see ongoing consolidation as stronger companies take advantage of opportunities to pick up well priced assets and to enhance their competitive position through further extensions of service and value proposition.

7 FACILITIES MANAGEMENT UK MARKET OUTLOOK 7 CONTRACT PRESSURE Austerity in the public sector is making it difficult to win a contract on any factor other than price. It can be very hard to persuade clients of a better service and future savings for a higher upfront cost. Few contracts are rolled over and undercutting is highly prevalent, making margin sustainability and delivery of a quality service highly challenging. Cost savings on new contracts are hard to find: they are already priced low, credible information is often limited at bid stage which can lead to underestimating requirements, and staff are typically TUPE d across to the new provider, so terms cannot be renegotiated. Contracts are also continually reviewed, often retendered and sometimes taken back in-house. Contract recycling is another theme and challenge, as clients ask their FM suppliers to do something different under the existing contract terms. Uncertainty around BREXIT slowed the contract pipeline, especially from international clients, and fuelled the current trend towards shorter, more flexible contracts. In this climate of cost scrutiny, efficiencies need to be found in-house. M&A transactions can be a key route to achieving economies of scale and efficiency savings to help insulate pressured margins and position for future growth. An example is CH&Co s merger with the HCM Group in June 2015 to create a combined 200m turnover business. The accompanying press release describes how the deal came together against a backdrop of an increasingly competitive industry where consolidation is the perfect answer for midsized independents ready to take on the largest competitors. A key ingredient of success for players can be learning when to say no and being more selective in bidding for contracts to achieve sustainable profitable growth. We expect to see more companies restructuring their operating models and leveraging technology to deliver contracts more efficiently. REGULATORY PRESSURE Slim margins in FM are being further pressured by the introduction of regulatory requirements such as pensions auto-enrolment and the introduction of the National Living Wage and the Apprenticeship Levy. The FM sector has a large population of staff earning the minimum wage, so the National Living Wage affects those providers which rely on unskilled labour. Their ability to pass on increased costs will depend very much on the client. While some clients have set a standard of paying the London Living Wage, other service providers are proactively working with clients to assess the impact of this on existing committed budgets. Some operators comment that it is currently difficult to pass on increased costs. In the public sector, the impact on previously approved budgets can be significant and many local authorities are only just starting to evaluate this, meaning service providers are having to re-appraise their agreed scope of services. The impact on future margins is leading operators to look at innovative measures they can introduce to deliver contracts more efficiently.

8 8 FACILITIES MANAGEMENT UK MARKET OUTLOOK M&A TRANSACTIONS REVEAL MARKET OPPORTUNITIES HARD SERVICES DRIVE GROWTH IN M&A TRANSACTIONS 51% of transactions over the period were acquisitions of businesses providing Building Management Systems services, M&E services and Compliance services Building Management Systems have recorded the highest number of transactions overall. M&E services experienced a four-fold increase in transactions in 2015 compared to 2014, while Compliance services transactions nearly tripled. These sectors in particular are underpinned by strong market drivers which are attracting investors Management buy-outs, which often involve Private Equity investors, accounted for 18% of FM deals in 2014, rising to 22% in % of M&E services deals were MBO transactions, signalling the attraction and growth potential seen in this sector. FIG 4: UK TRANSACTION VOLUME BY SECTOR, JANUARY MARCH Building management systems M&E Compliance services Other* Building maintenance Cleaning Catering Security Integrated services Landscaping FIG 5: TOTAL UK DEALS BY SECTOR, JANUARY MARCH 2016 Security, 5.4% Integrated services, 5.0% Landscaping, 3.2% Building management systems, 18.7% TECHNOLOGY AND INNOVATION ARE DRIVING CHANGE IN FM Catering, 6.1% Cleaning, 6.8% M&E, 17.6% FM PLAYERS ARE DIVERSIFYING INTO TECHNICAL AND ENERGY SERVICES Building maintenance, 9.4% Other*, 12.6% Compliance services, 15.1% INCREASING REGULATIONS ARE DRIVING THE GROWING MARKET FOR COMPLIANCE SERVICES *Other includes onsite waste services, removals & storage, records management

9 FACILITIES MANAGEMENT UK MARKET OUTLOOK 9 FIG 6: EXAMPLE STRATEGIC TRANSACTIONS IN BUILDING MANAGEMENT SYSTEMS, M&E AND COMPLIANCE KEY THEMES ACQUIRER TARGET(S) RATIONALE BUILDING MANAGEMENT SYSTEMS AND ASSOCIATED TECHNOLOGY DEALS ENGIE SA C3 Resources Ltd ENGIE acquired C3 Resources in March 2016, a digital energy management specialist. C3 s digital platform can link data from a variety of sources and will be used to enhance the way the business analyses data, enabling energy and FM teams to predict energy usage and take proactive action to better control it. Trimble Navigation Ltd Amtech Group Ltd Trimble Navigation acquired Amtech Group, producer of software products for the electrical and mechanical building services industry in the UK, enabling specification, design, procurement, construction management and operation, aligning with Trimble s vision for integrated solutions covering a building s full lifecycle. Laundrapp Ltd Washbox Ltd In the apps market, Laundrapp, provider of on-demand laundry services acquired competitor Washbox to solidify its market leading position in the rapidly evolving digital on-demand market. A similar transaction was Handy Inc s acquisition of London-based Mopp Ltd, which operates a platform to book a professional cleaner online. DIVERSIFYING TO TECHNICAL SERVICES ISS A/S GS Hall plc ISS acquired GS Hall for 53m in January 2015, its first major acquisition since GS Hall is a leading technical services company focused on M&E engineering, energy management and compliance. ISS commented that technical services are emerging as a central component of integrated facility services, and are an increasingly important and deciding factor for the customer in choosing the right partner, often on an international basis. ABM Industries Inc Westway Services Ltd ABM, an international provider of FM services acquired private-equity backed Westway Services in December 2015, a 54m turnover provider of technical engineering services in the UK. ABM was keen to add higher margin activities, and grow its ability to offer complete FM solutions. ABM is now focused on cross-selling Westway s deep technical services to its existing client base, and leveraging Westway s client base to offer additional services. FM AND ENERGY SERVICES CONVERGE SSE plc Energy Solutions Group Ltd SSE acquired Energy Solutions Group in 2014 for 72m, which designs, supplies, installs and maintains building management systems, from exiting investor Bridgepoint Development Capital. SSE is bringing together M&E contracting, lighting services, private energy networks and telecoms into a new Enterprise division, to meet the energy and related need of clients in an enhanced and co-ordinated way. UtilityWise plc t-mac Technologies Ltd Utilitywise, which provides utility cost management consultancy services, acquired t-mac Technologies for up to 22m, developer and marketer of an intelligent system for remote, internet monitor and control of assets including heating, ventilation, air conditioning and refrigeration, fire and security systems and utilities. t-mac's cloud-based technology provides Utilitywise with the assets and skills to offer new value-added subscription services to its customers as part of a complete Utility Management Plan for electricity, gas and water. Servest Ltd Llewellyn Smith Holdings Ltd Servest acquired Llewellyn Smith in August 2015, an energy efficiency compliance and consultancy business, a lead assessor for the Energy Savings Opportunity Scheme. Servest had already established an energy management arm, but the acquisition brings in additional expertise, services and recurring revenue streams. BUY AND BUILD IN M&E AND COMPLIANCE Bilby plc P&R Installation Company Ltd Purdy Holdings Ltd Spokemead Maintenance Ltd DCB (Kent) Ltd Bilby acquired P&R Installation, a gas heating and building services provider in March 2015, and complemented this with Purdy Contracts, a gas and electrical contractor in July 2015, to expand service range and geographical scope. Acquisitions of Spokemead and DCB followed in March 2016, further consolidating electrical and building services. Bilby continues to target complementary businesses servicing housing associations and local authorities in London and the South East. Marlowe plc Fire & Security (Group) Ltd, t/a Swift WCS Environmental Group Ltd Marlowe is a critical assets maintenance services business. Its first acquisition was of Swift Fire and Security for 13m in February 2016, a 21m turnover provider of Fire Protection and Security Systems installation and maintenance services. In April 2016, Marlowe went on to acquire WCS Environmental Group, a provider of integrated water treatment, hygiene, testing and engineering services. Marlowe plans to expand and develop both of these businesses into market leaders across the UK, accelerated through further targeted acquisitions. Marlowe plans to diversify and broaden the services that the group delivers by acquiring and developing specialist support service businesses in complementary sectors to build a group of companies that provide critical asset maintenance services throughout the UK.

10 10 FACILITIES MANAGEMENT UK MARKET OUTLOOK RISE IN BUILDING TECHNOLOGY AND REGULATION FUELS DEALS BUILDING MANAGEMENT SYSTEMS DOMINATE M&A ACTIVITY Transactions of businesses providing Building Management Systems services accounted for 19% of FM deals seen between January 2014 and March These include installation of fire and security systems, smart gas and electricity solutions, and technology for monitoring assets such as HVAC. It also includes integrated solutions which link building management systems with mobile applications for tracking and scheduling activity, linking with management reporting. This M&A activity reflects client demand for intelligent data sharing, building lifecycle management, energy and sustainability management and mobile technology enablers. We expect that Building Management Systems transactions will continue to dominate the FM market as demand for smart buildings and sustainability drive ongoing technology adoption and integration. SMART BUILDINGS AND REGULATIONS DRIVE CONVERGENCE OF FM AND ENERGY SERVICES Transactions also reveal the emergence of new competition from the traditional energy suppliers, who are extending into building management systems through acquisition: SSE plc acquired building management systems business Energy Solutions Group Ltd for 72m from Bridgepoint in 2014, while Centrica plc acquired AlertMe.com Ltd for 44m from Index Ventures and npower Ltd acquired RUMM Ltd, an energy monitoring business in At the smaller end of the market, Utilitywise plc and Smart Metering Systems plc have also been active acquirers of smart energy technology and services. Many FM providers are also diversifying from core M&E services and building management systems installations to provide higher-margin energy management and technical services, which help customers comply with regulations while saving them money. The strict regulation and technological trends in energy services, such as the policies for carbon emission reduction, are likely to increase the maintenance requirements for building systems and push the installation of renewable energy equipment. Alongside this, new technologies such as smart devices for monitoring and controlling energy consumption should drive demand. Smart devices also have great advantages for FM businesses, reducing the need for site visits and significantly reducing costs. Facilities managers are ideally placed to develop these adjacent, higher margin service lines: some businesses such as ENGIE SA and Bouygues Energies & Services have long provided energy and carbon management services, while some have recently launched energy divisions, such as BAM FM Ltd and Robertson Group Ltd. As competition intensifies and demand increases for energy compliance services, we expect to see further businesses diversify.

11 FACILITIES MANAGEMENT UK MARKET OUTLOOK REGULATORY DRIVEN M&E AND COMPLIANCE MARKETS REPRESENT A THIRD OF DEALS Mintel estimates that M&E services accounted for 36% of the contracted out FM market in 2014, so it is not surprising that this and the related Compliance services sectors account for 33% of M&A transactions since January All these factors combine to drive acquisitions, with businesses wishing to compete effectively in this market completing transactions to build scale, breadth of service and geographic coverage. Smaller businesses often find the high operational costs associated with health and safety regulations make consolidation attractive to achieve economies of scale. M&E and Compliance services are driven by stringent legislation and regulation, they remain obligatory regardless of budgetary pressures and other demands. It is a resilient sector, insulated from economic fluctuations and is therefore highly attractive to investors. Three companies of note are Bilby plc, Marlowe plc and Premier Technical Services Group plc, which have all listed on AIM in the last year. They have each chosen a niche, extended into adjacent sectors via acquisition, and are undertaking buy & build strategies to further extend their reach, service range and strengthen financial position. As larger Groups, they are now eligible to tender for larger, more profitable public sector framework agreements. These services also tend to have a degree of operational and technical complexity which favours outsourcing. Austerity in the public sector has led to new procurement frameworks, and multi-discipline contracts with one stop shops that are able to provide a broad range of building services. These frameworks typically have minimum pre-qualification revenue requirements which favour larger groups. EXAMPLE REGULATIONS DRIVING DEMAND Decent Homes Standard Right to Repair Scheme Gas Safety Electricity at Work F Gas Regulations Control of Asbestos Water Supply Regulations NPCC Requirements for Security Systems Working at Height Restrictions Fire Safety Order Construction Design & Management Lightning Protection Portable Appliance Testing Part L Building Regulations Energy Act 11

12 12 FACILITIES MANAGEMENT UK MARKET OUTLOOK TECHNOLOGY AND INNOVATION ARE DRIVING CHANGE IN FM BIG DATA NEEDS TO BE HARNESSED BY FM Clients are demanding intelligent data sharing, it builds transparency and trust, and can help optimise operations. However, a number of Directors we have spoken to comment that while this is requested by clients at bid stage, client usage of it is low in practice. There is a huge opportunity for FM players to harness data to advise their clients and move up the value chain. The Internet of Things (e.g. smart metering) and the resulting Big Data are two game changers that will only add weight to this opportunity. The sustainability agenda and the rise of smart buildings will proliferate data further. According to the Royal Academy of Engineers, by 2020 there will be an estimated 50 billion networked appliances and sensors worldwide, constituting a vast global network of datagenerating devices. The ability to effectively gather, analyse and disseminate useful data to clients, can move FM providers on from reporting on contract KPIs and factual analytics, to predictive analytics, and asset management, where they advise clients on their asset funding cycle, for example. It can also be used to measure staff productivity wherever they are based and enhance workplace wellbeing. In this scenario, FM can no longer be viewed as a commodity purchase, but as a provider of demonstrable added value and therefore worthy of a higher contract value. Large market players tend to have teams focused on leveraging these benefits. The challenge for resource-light small and medium sized businesses will be choosing which data they should analyse in order to drive the highest benefits. The cost-saving implication of developing this service line should also attract FM players: a number of BDO clients report cost savings in reactive maintenance of 15-20% since they had focussed on planned preventative maintenance with the help of telemetry. MOBILE TECHNOLOGY TRENDS Mobile applications are facilitating the capture and dissemination of data, allowing FM providers to track their workforce and measure productivity. Most companies have already invested in smart phones for their employees, with downloadable apps that direct their work and capture realtime data. Other providers have invested in trials of wearable technology such as smart watches, so that their cleaners, security staff and mobile operators can receive schedules and task information and feedback very quickly on progress. It is also a smart way of monitoring the safety of lone workers. While mobile technology achieves efficiencies for the FM provider, it also creates useful data that could harnessed for clients. FM companies may need to invest in staff who are able to provide this added-value service for clients, as businesses which have not done so may find themselves lagging behind.

13 FACILITIES MANAGEMENT UK MARKET OUTLOOK 13 OPPORTUNITIES FOR FULL LIFECYCLE MANAGEMENT A further innovation gaining traction in the market is Building Information Modelling ( BIM ), an intelligent model-based process that provides insight to help plan, design, construct, and manage buildings and infrastructure. The Government has made BIM a requirement of all central government construction contracts from April 2016, and in time, it is anticipated that BIM will be adopted across all construction projects, and used to manage the entire lifecycle of a building. It makes sense for facilities to be designed with their end use in mind. Involving FM providers from the design phase will create efficiencies and position businesses to offer full lifecycle management. BIM will hold spatial, sustainability, energy, and asset information in a ready state for analysis, which will facilitate data-driven decision making, including accurate bidding for contracts. FM players which already form divisions of construction firms are in a strong position to leverage this opportunity, but all companies in the sector should be looking at how they can position themselves. Hosting of BIM data is a further opportunity, including the monetisation of this data to other service providers. THE FUTURE OF FM? As well as providing predictive maintenance and asset management services, FM providers could also branch into consulting-style improvement services such as energy management, sustainability management, space optimisation and risk management. We expect to see further integration of building management systems, including integration with BIM, as companies in the FM, construction and energy sectors converge to provide solutions to effectively manage a building through its whole lifecycle. DRONES REDUCE RISKS Further innovations driving efficiencies and promoting safety include the increased use of drones. For example, security patrols can be undertaken by drones and monitored from a computer; they have also been used to undertake window-cleaning of high-rise buildings. These innovations reduce the number of skilled staff needed on the ground and reduce the need for expensive insurance. Recent high-profile police investigations into the use of drones could slow the pursuit of this technology, but it could revolutionise the delivery of certain FM services. Where it can be effectively leveraged, we expect to see an ongoing switch-out of manpower in favour of technology.

14 14 FACILITIES MANAGEMENT UK MARKET OUTLOOK BDO MERGERS & ACQUISITIONS OUR UK CORPORATE FINANCE TEAM COMPLETED UK DEALS IN 2015 VALUED AT OVER 10.6BN COUNTRIES WITHIN OUR GLOBAL NETWORK 1. Independent research (Mid Market Monitor ) undertaken by Meridian West shows BDO has the highest client satisfaction rating among its peers 2. Client Listening Programme 2014/15 RECENT SECTOR TRANSACTIONS Sale of Quadron Services to idverde Group Sale of The Landscape Group to idverde Group Sale of Sure Maintenance to Lakehouse plc Merger of CH&Co and Host Management and investment by MML Capital Partners

15 FACILITIES MANAGEMENT UK MARKET OUTLOOK BDO INTERNATIONAL WE HAVE THE INTERNATIONAL CALLING CARD TO REACH OUT TO GLOBAL OPERATORS BDO presence 15

16 FOR MORE INFORMATION: SATVIR BUNGAR Head of Facilities Management Sector m: +44 (0) e: This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members' names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms BDO LLP. All rights reserved.