Interserve will get £120m in cash and a 23.4% shareholding in Mitie.
The deal includes all of Interserve’s facilities management operations in the UK and overseas across both public and private sectors, except for its Citizen Services division, (which includes Interserve Healthcare, Interserve Learning & Employment (ILE) and work for the Probation Service).
It is apparent that Citizen Services was not included in the deal because Mitie doesn’t want it, not because Interserve wants to keep it.
Although Citizen Services still leaves Interserve with more than a toe in the water of support services – the division employs more than 3,000 people – the Mitie deal substantially returns Interserve to its construction roots, pushed to the background during the Adrian Ringrose years.
Interserve Support Services (called Interserve Facilities Management throughout by Mitie) made an operating profit of £38m in 2019 on revenue of £1,369m.
Mitie plans a fully underwritten £201m rights issue and refinancing to help fund the deal and give it the necessary liquidity to get through the current financial crisis.
Completion of the transaction is subject to approval from Mitie’s shareholders but is expected to complete by the end of this year. The Competition & Markets Authority is also expected to be interested. Mitie will be engaging with the CMA as part of the merger process, Interserve said.
The acquisition will make Mitie organisation the largest facilities management company in the UK, employing more than 77,500 people, evenly balanced between the public and private sectors.
Following completion of the transaction, Interserve Group Limited will have three divisions: Interserve Construction, Equipment Services (RMD Kwikform) and Citizen Services.
Interserve collapsed into administration in March 2019 and was acquired by a group of banks and investment firms in a debt-for-equity swap. They still want their money back and brought in turnaround specialist Alan Lovell to get it for them.
Alan Lovell will continue to lead Interserve Group Limited as chairman, supported by Mark Morris as executive director and chief financial officer. Interserve Construction Limited will continue to be chaired by Nick Pollard, supported by managing director Paul Gandy.
RMD Kwikform continues to be led by chairman Ken Hanna and Ian Hayes as managing director.
Citizen Services, previously part of Interserve Support Services, will continue to be managed by Ian Mulholland. It will continue to run Interserve Healthcare and Interserve Learning & Employment but the Ministry of Justice is renationalising probation services on expiry of current contracts in June 2021.
Alan Lovell, chairman of Interserve Group, said: “The proposed combination of Interserve Support Services with Mitie will create the UK’s leading facilities management company, with strong prospects in both the public and private sectors providing significant opportunities to employees, customers, and shareholders alike.
“The transaction, which is consistent with our stated strategy of realising value for our shareholders, will reduce the group’s debts, enable a paydown to our shareholders and stabilise the group’s financial position through a retention of a proportion of the proceeds.
“It will leave Interserve as a focused group executing clear business plans in Interserve Construction Limited and RMD Kwikform, as well as our Citizen Services portfolio of businesses. Interserve Group Limited see significant opportunities for these businesses in their respective markets, which we will continue to pursue with a high level of discipline.”
Mitie chief executive Phil Bentley said: “We are pleased to have signed a sale and purchase agreement to acquire Interserve's Facilities Management. This will be a transformative acquisition, expanding the scale and footprint of our business to create the UK's largest facilities management company and accelerate the delivery of Mitie's long-term technology-led, vision.
"The transaction will better balance our public and private sector divisions; driving greater returns from the investments we have made in technology and customer service over the past three years. Together, we will create a true UK facilities management champion and partner to UK business, with over 77,500 exceptional employees."