G4S doubles up on £5.2bn takeover of Danish rival

Security group G4S will nearly double in size to become one of the largest private employers in the world, following a £5.2 billion takeover deal unveiled yesterday.

The group, better known for running prisons and guarding banks, will start dishing up school dinners and cleaning hotel rooms after it snapped up Danish outsourcing firm ISS.

G4S is already the largest employer in the FTSE 100, but the merger will see its workforce swell to around 1.2 million.

The deal is worth £1.5bn to ISS’s private equity owners – Swedish private equity investor EQT and Goldman Sachs Capital Partners. Half will be paid in cash and the remainder in G4S shares, giving them about 11 per cent of the enlarged company. G4S will also take on the Danish firm’s £3.7bn debts. ISS ditched a planned IPO in March due to market turmoil.

Investors appeared to be spooked by the sheer size of the deal and shares in West Sussex-based G4S fell by more than 20 per cent yesterday. But chief executive Nick Buckles said: “Deals like this only come along every five to seven years – this is transformational and market changing. We think we have got the track record to make it work.”

G4S, which is to provide guards at the London Olympics and recently won a contract for court services in the north of England, will raise £2bn to help fund the deal through a fully underwritten seven-for-six rights issue. In addition, it has agreed new banking facilities with Deutsche Bank, HSBC Bank and Royal Bank of Scotland, which will also be used to refinance its existing debt.

G4S said the deal would enable it to move into a range of support services to complement its security operation. It said the tie-up will lead to cost savings of £100 million a year by 2014 and will transform the group, which currently employs 635,000 people. In the UK, both companies employ about 40,000 staff.

Buckles said the deal would deliver double-digit post-tax growth in return on investment capital and double-digit earnings per share within three years. The combined revenues of the group will be £16bn, more than double the £7.4bn of G4S in 2010.

The merger will see G4S cut 2,000 jobs across 50 countries, with less than 10 per cent of the cuts being made in the UK. However, G4S said it will take on 5,000 jobs a year in the UK as demand for outsourcing from government departments and businesses grows. The enlarged company will be headquartered in Crawley.

Investec analyst Guy Hewett said the deal made strategic sense: “A multi-service offering maximises the cost-saving potential to clients.”