Sectors
Buying a facilities management business, and how lenders look at it
Facilities management has the longest contracts and the thinnest margins of anything on this site. It is also the sector where the people and the contracts are least separable: buy the contract and, in most cases, you buy the workforce delivering it, whether you planned to or not.
What you are actually buying
A contract book, and the obligation to staff it
FM businesses divide broadly into:
- Hard services. Building fabric, mechanical and electrical maintenance, statutory compliance. Skilled labour, better margins, closer to the HVAC model.
- Soft services. Cleaning, security, catering, grounds, waste. Labour-heavy, thin margins, and highly sensitive to wage movement.
- Total or integrated FM. Both, bundled under one contract, usually with a management fee layered on top.
The mixture matters because the two halves have very different risk profiles. A soft services contract at a low margin can be turned loss-making by a single increase in statutory wage rates if the contract has no mechanism to pass that through. Hard services has more room, but needs qualified people you may not be able to replace.
Ask, for every significant contract: how long is left, what is the margin, and what happens to the price when labour costs move.
The thing that surprises buyers
People transfer with the work
Where a service contract moves from one provider to another, the employees assigned to that work will in many cases transfer with it, on their existing terms and with their continuity of employment intact. That is not a detail to be handled by HR after completion. It is central to what the business is worth and to what the funding has to cover.
It cuts both ways. It means you cannot buy a contract and staff it more cheaply with your own people. It also means that when a contract you hold is lost, the cost of delivering it usually leaves with it rather than stranding you.
What a buyer needs before pricing is the employee liability information: who is assigned, on what terms, with what length of service, what pension arrangements, and what liabilities are accrued. A seller who is slow to produce it is telling you something.
What carries value
The things that move the number
Unexpired contract term
Years remaining, weighted by contract value. This is the closest thing FM has to a headline valuation metric.
Re-tender history
How often has the business retained a contract at re-tender, and at what margin? Retention at a lower price is not the same as retention.
Indexation clauses
Whether the contract lets the price move with wage costs. In soft services this single clause can decide profitability.
Client concentration
One large contract can be most of the revenue and most of the risk. Its expiry date matters more than almost anything else.
Mobilisation cost
What it costs to start a new contract before any money arrives. This is the working capital the business needs to grow.
Compliance record
Statutory compliance across the estates managed, and the records to prove it. Gaps are inherited liabilities.
The lender's view
What lenders look at, and what makes them nervous
What gives a lender comfort
- Long unexpired terms across a spread of clients.
- A record of retaining contracts at re-tender without cutting price to do it.
- Indexation or pass-through on labour costs.
- Employee liability information produced promptly and in full.
- A buyer already operating in FM who can absorb the contracts into existing management.
What makes a lender nervous
- A single contract that is most of the revenue and expires inside the loan term.
- Fixed-price soft services with no wage pass-through.
- Undisclosed employment liabilities, accrued holiday or pension exposure.
- Margins so thin that a small cost movement wipes out debt service.
- Growth funded by mobilisation the business cannot afford.
That first one is the question to prepare for. If the biggest contract expires before the debt is repaid, expect the lender to size the facility against life after that contract, not before it.
Deal shapes
The structures that actually get funded
Trade consolidation. An established FM operator buys a smaller one for its contract book and regional coverage. The most fundable shape, because the buyer can evidence the cost of delivery. See bolt-on acquisitions.
Management buy-out. The operations team buys the business from an owner stepping back. Lenders like the continuity, which matters more in FM than most sectors because client relationships are held by contract managers. Usually needs vendor finance in the structure.
Contract book purchase. Buying named contracts rather than the company. Cleaner on liabilities, but the employees assigned to those contracts still transfer, so it is not the clean break it looks like.
Working capital is almost always the constraint rather than the purchase price. Read working capital and invoice finance alongside the term facility.
Paperwork
What you will be asked for
- Three years of accounts and current management figures.
- Contract schedule: client, services, annual value, margin, start and expiry, extension options.
- Indexation and change-in-law provisions on the largest contracts.
- Re-tender history over at least five years.
- Employee liability information for staff assigned to each contract.
- Accrued holiday, pension arrangements and any live employment claims.
- Statutory compliance records across managed estates.
- Debtor ageing and payment terms by client.
- Mobilisation costs incurred on recently won contracts.
Traps
The ones that cost buyers money
Pricing on turnover. FM turnover is large and the margin on it is small. A multiple applied to revenue rather than to profit produces a number that cannot be serviced.
Ignoring the expiry profile. A contract book with an average of eighteen months left is a very different asset from one averaging four years, at identical current revenue.
Underestimating employment liabilities. Accrued holiday, long service, pension arrangements and live claims all come across with the people. Get the information before you agree price.
Fixed price against moving wages. A multi-year soft services contract with no pass-through mechanism is a bet on wage costs, and it is a bet you are taking on from completion.
Funding the purchase but not the mobilisation. Winning work costs money before it earns any. A business bought with no headroom cannot take the contract that would have made the deal work.
Why us on this one
We know who prices a contract book properly
The part that is hard to buy is knowing which lenders understand that in FM the contract expiry profile and the employment obligations are the deal, and which will look at the turnover and the thin margin and stop there.
Tell us the contract profile, the headcount and the shape of the deal. We go to the people who have funded FM before and come back to you with who can fund it and what they will want to see.
We introduce buyers who are acquiring through a limited company or a NewCo. If you are buying personally, as a sole trader or as a partnership, we will point you to an authorised firm directly instead.
Tell us the contract profile and the headcount
In FM those two numbers travel together and they decide the funding. Send us the contract schedule and the shape of the deal.