G4S, the world’s largest security firm by revenue with a turnover of an estimated 7.2 billion GBP, has been subject to a number of hostile takeover bids in late Q3 and early Q4 2020. This is due to potential acquirers seeking to take advantage of a suppressed share price as a result of the COVID-19 pandemic, among a number of crises and scandals in recent times.
The UK-based security firm has suffered a series of major failures in the last 10 years, including its well-documented ill handling of the security for the 2012 London Olympics in which the firm failed to recruit sufficient staff, leading to intervention from the UK military. In addition to this, G4S was stripped of control of a prison in Birmingham in 2019 only 8 years into a 15-year contract with a report detailing their approach as ‘exceptionally violent.’ In 2020, COVID-19 lockdowns and the resulting halt in mass-gatherings has depleted G4S’ revenue, with events and firms that would normally require security services, including music festivals and concerts, sports events and cash transportation services for brick and mortar stores coming to an almost complete standstill for a large portion of the year.
An attempt to seize control of G4S by Canadian Security firm GardaWorld was formally proposed to the target’s shareholders in late September 2020. This approach was swiftly rejected, with G4S labelling the offer ‘predatory,’ accusing Gardaworld of undervaluing the firm. The ownership battle took a turn on the 9th of October, as G4S announced that US security firm Allied Universal was also preparing a bid.
GardaWorld, of which private equity firm BC Partners obtained a 51% stake in October 2019, has had a clear focus on shrewd acquisitions in recent times, having added 9 businesses in 2019 alone. The Canadian firm has sought to take advantage of a tough time for UK equities, with the FTSE100 only up 19.2% from Year Low in March, in contrast to the Canadian Nasdaq which has seen growth of 65.9% from its Yearly Low, also in March. GardaWorld’s initial offer of 190p a share, valuing G4S at approximately 3 billion GBP (a 12x downgraded earnings multiple), was below the trading price at the time of close at 200p. GardaWorld cited that their offer was a ‘rescue bid,’ also describing the UK firm as ‘deeply troubled,’ hence the seemingly low earnings multiple when compared to deals in the industry over recent years and GardaWorld’s deals in the preceding year which had an average EBIT multiple of 15.2.
G4S rejected the bid at the time, labelling it as ‘predatory and unattractive,’ publicly retaliating against GardaWorld in a statement, stating that they believe Gardaworld is ‘lossmaking’ and ‘in need of a transformative acquisition,’ highlighting the truly hostile nature of the potential transaction.
Shortly after G4S’ rejection of the GardaWorld bid, news regarding a potentially competing offer from U.S Security firm, Allied Universal, emerged. Allied, backed by Canadian pension fund Caisse de Dépôt et Placement du Québec, private equity company Warburg Pincus and Brazilian Bank J Safra Group, had revenues of 8.3 billion USD in the previous year and placed an opening bid of 210p a share, valuing G4S at 3.3 billion USD. This bid was also rejected, with G4S believing the competition will drive the price higher towards the 230p per share area. Allied is rumoured to be preparing an improved offer.
With margins decreasing year on year, an ever-dwindling dividend pay-out and a number of high-profile incidents that have tarnished the reputation and trust in G4S, a move back to private ownership is likely to be the best cause of action. Whilst any deal is still in its early stages, it seems clear that G4S shareholders are keen to sell, with Schroders (who own a 10.4% stake) saying it was only a matter of finding a “fair price.” The tit-for-tat battle between G4S and GardaWorld may place Allied Universal in a good position to capitalise, however a second lockdown is unlikely to improve G4S’ bargaining position as a number of revenue sources are halted for perhaps longer than expected in September. Whilst impossible to predict the outcome of the bidding war for G4S, the new owners will undoubtedly have a task on their hands to return the firm to not only the margins but also the reputation that they had in the mid-late 2000s.
By Daniel Regan
Sector Head: Venkat Rajasingham