The security firm G4S, which provides the night watchmen, caterers and cleaners for GCHQ, is buying its Danish rival ISS in a £5.2bn deal that will create the world's largest integrated security provider with more than one million employees.
ISS's owners EQT, a Swedish private equity firm backed by the Wallenberg family, and GS Capital Partners, a private equity unit of Goldman Sachs, will receive £1.52bn in cash and shares for the business, leaving them with an 11 per cent stake in the merged companies.
They bought ISS for 21.9bn Danish kroner (£2.57bn) in 2005, but having struggled to exit the business recently. ISS cancelled a $2.5bn (£1.6bn) initial public offering in March due to concerns over market stability two months after talks with investment firm Apax Partners broke down over a reported $8.5bn deal.
G4S, which is taking on £3.7bn debt as part of the deal, said it would fund the giant deal – technically a reverse takeover – with a fully underwritten rights issue. It will offer shareholders seven shares for every six they hold at 122p per share, raising £2bn. It will also refinance existing debt. Reflecting the rights issue, its shares slumped 22 per cent to 219.9p.
"We believe this acquisition will transform our business, significantly accelerate the delivery of our solutions strategy and create substantial value for shareholders," G4S chief executive Nick Buckles said.
For G4S the deal represents greater market share and expansion into new business services overseas to create a firm with more than a million employees in over 130 countries with combined revenues of £15.9bn.
The company aims to reduce overheads by £100m by 2014 at a one-off implementation cost of the same amount. The newly integrated company plans to invest £20m annually in its global operations.
A G4S spokesman said there would be "modest job cuts" in the UK with 200 people out of a combined staff of 80,000 for the two companies expected to lose their jobs over a three-year integration phase.
G4S clients include GCHQ and the Ministry of Justice. ISS is a competitor with 4GS in the security sector in dozens of countries where it also provides cleaning, catering, pest control and call centre services in a global market worth an estimated £500bn.
"Together they can increase their exposure to the significant growth opportunities in emerging markets and accelerate their efforts in the growing market opportunity for integrated facilities services," said ISS chairman Ole Andersen.
ISS recorded 14 per cent growth in emerging markets in the first half of this year. G4S will hold an extraordinary meeting on 2 November to approve the deal. Regulatory and anti-trust approvals are expected by the end of this year.Reuse content