G4S secures Danish rival for £5.2bn

The deal will create a security firm with revenues of £16bn and 1.2m employees. But shareholders don't seem sure.

by Emma Haslett
Last Updated: 17 Oct 2011
Security company G4S may be the largest company you’ve never heard of, but it’s about to get even bigger. The firm has just announced an agreement to buy Danish rival ISS for the not insignificant sum of £5.2bn, creating a company with a combined revenue of almost £16bn (about the GDP of Uganda), and 1.2m employees. Shareholders, though, aren’t entirely convinced: not only has G4S agreed to take on £3.7bn of debt, but the prospect of integrating such a large acquisition is also rather daunting. Thus, shares in G4S dropped by 12.4% after the announcement. Not exactly a vote of confidence …

To be fair to them, G4S’ shareholders have good reason to be cautious. The company, which provides security for the likes of Shell and GlaxoSmithKline, as well as running prisons and protecting embassies is fully aware that ISS has had its fair share of problems in the past. The company was taken private in 2005 for $3.9bn, by Goldman Sachs Capital Partners and Scandinavian buyout firm EQT. They attempted to launch a $2.8bn IPO in Copenhagen in March, which was derailed when the markets started to become unstable. Not that G4S has an entirely trouble-free backstory. Readers of a certain age may recall that back in the days when it was known simply as Group 4, the firm developed a unfortunate reputation for ‘losing’ prisoners…

But G4S CEO Nick Buckles was trying to shore up sentiment this morning. He insisted that, by 2014, ISS could create £100m of pre-tax cost savings annually (impressive – but it’ll nonetheless be quite some time before it pays for itself). And Buckles added that it’ll provide ‘significant growth opportunities’. ‘This acquisition will transform our business, significantly accelerate the delivery of our solutions strategy (eh?) and create substantial value for our shareholders,’ he said. Which strikes us as a bit of a tall order, particularly during straitened times…

Analysts don’t seem so sure. Actually, they’re not sure about anything: while one group is firmly in the ‘no’ camp, others disagree. Thus, Seymour Pierce’s Kevin Lapwood said that by doubling the size of G4S, there ‘is bound to be some transactional risks in the short term’. Investec’s Philip Shaw, on the other hand, was positively aglow with enthusiasm, calling it a ‘bold strategic move. This transforms G4S from a single service provider to a multi-service facilities management provider.’ So no one seems to know whether it’s a good idea or not

What we can say for sure is that G4S does have a history of integrating large acquisitions pretty successfully. Although, with the governments of the European economies it operates currently behaving with all the dignified composure of a fox cornered by a pack of baying hounds, nothing is guaranteed at the moment.

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