Outsouring heavyweight Mitie has struck a deal to sell its social housing business to Mears Group for up to £35 million.
Mears will take control of Mitie Property Management (MPM) and MPS Housing for an initial sum of £22.5m and then up to £12.5m dependent on certain performance milestones being achieved.
Mitie, whose contracts in Scotland including cleaning and maintaining the Scottish Parliament building under a facilities management contract, said the majority of the proceeds will be used to strengthen its balance sheet and pay down some of the firm’s pension deficit.
Mitie chief executive Phil Bentley said: “Mitie’s strategy is to focus on its core businesses and core clients, where service delivery and margin can be enhanced by the use of technology to deliver the critical environment reliability and cost efficiency that our clients increasingly demand from their ‘connected workspace’.
“The sale of MPM to Mears will allow Mitie to continue to focus and build scale in its core businesses. Mears is highly regarded in the social housing sector and has the specialist skills required to deliver to its client base.”
The social housing unit provides property repairs and maintenance services. It employs more than 1,000 people in the UK and carries out some 265,000 responsive repairs each year, along with 25,000 repairs for critical services. For its part, Mears said the deal will increase annual revenue by at least £100m and the group order book by about £200m.
It is placing some 6.8 million shares at 331.5p each to help fund the deal.
Gert Zonneveld, an analyst at Canaccord Genuity noted: “The social housing business… provides repairs and maintenance services to the social housing sector and property management services to over 30 social housing providers in the UK.
“The disposal of the social housing business should help strengthen the group’s balance sheet and accelerate repayment of the pension deficit. We retain our ‘buy’ recommendation and 300p target price.”
Mitie is in the second year of an overhaul under Bentley, who has outlined plans to eventually cut annual costs by £50m by 2020.
The company – whose name is derived from the phrase management incentive through investment equity – was forced to launch the wide-ranging turnaround plan after a string of profit warnings amid a torrid time for outsourcing firms following the collapse of Carillion.