Interserve, the £1.9b turnover facilities management (FM) and construction company, has emerged as the bidder in “advanced discussions” to acquire Mouchel, according to the FT (see Mouchel a step closer to finding a new home). We can only imagine that Interserve is offering a considerably higher price for Mouchel than the c£172m cash and shares offer from Costain - the company which has already been rebuffed twice by Mouchel (see Costain – third time lucky for Mouchel?). Mouchel and Interserve have some early experience working together, partnering (along with Capgemini) on the £152m outsourcing deal at Bournemouth Borough Council since last November (see here).
Interserve competes against the likes of support services and BPO giant Serco in its core FM (support services) business. FM was 57% of Interserve’s revenue in its most recent half-year ended 30 June 2010. Engineering and construction, or ‘professional services’, is 40%, and Interserve even has a concrete structure operation ‘equipment services’, which makes up the remaining 3%. The UK is well over 90% of Interserve’s business, although it does have interests in the Middle East and Asia Pacific.
FM and construction is a typically low margin game. In H110, Interserve’s revenue fell 1% to £944.5m, and its pre-tax profit fell 32% to £27.3m (a 2.9% margin). We can see the attraction then for Interserve in Mouchel’s business which is more weighted to professional services and BPO. This should, in theory at least, provide better margins. Mouchel of course is no picture of health right now – it reported a 15% drop in full year revenue (to 31 July), and a pre-tax loss of £14.7m (see here). So Interserve would have plenty of work to do to turn things around.