The struggling private security company ArmorGroup has fallen into the arms of the security giant G4S just six months after a scandal involving agents of the rival Blackwater Worldwide, who were accused of killing Iraqi civilians, cast a pall over the sector.
The company, which guards oil pipelines in Algeria and provides security to British embassies abroad, agreed to the £43.6m buyout after it was unable to halt deteriorating profits. ArmorGroup derives nearly half of its turnover from Iraq, where it trains soldiers and provide security services.
The combination of the Blackwater scandal, which made international headlines last year, and a slowly improving security picture in Iraq means that business has slowed markedly there.
The US Department of Defence's infatuation with private security companies (PSCs), which received tens of billions of dollars worth of work and were a key component of the war strategy under the former defence secretary Donald Rumsfield, has waned.
The litany of PSCs, staffed by former special forces and military personnel, that cropped up to meet that need is now finding it difficult to diversify away from the war-ravaged country. Contracts are smaller, less frequent, and more often split among several companies.
ArmorGroup said yesterday profits before tax last year had shrunk to just $7.1m (£3.6m) even as turnover grew by 8 per cent to $295m. In November, the chief executive, David Seaton, resigned after the company issued a profits warning.
The 80p-per-share offer from G4S yesterday represents a 127 per cent premium to Armor's share price on 26 February, when it first informed the market that it was in takeover talks. Before that date it had lost 75 per cent of its value.
For G4S, the deal fits with chief executive Nick Buckles' strategy of increasing the company's share of business in war and conflict zones, where contracts generally provide much higher margins. Among the capabilities G4S will add through the deal are mine clearing and kidnap and ransom negotiation. Armor's presence in countries where G4S doesn't operate – Algeria, Rwanda, Afghanistan and Sudan – was also an attraction.
G4S has secured approval from the board and from shareholders holding 51 per cent of its stock. Sir Malcolm Rifkind, Armor's chairman and a former defence secretary, said: "The offer by G4S... gives ArmorGroup shareholders the prospect of a cash exit at an attractive price when considered against the potential of the ArmorGroup as a standalone business."