Cuts in local authority spending are driving a wave of consolidation among suppliers that is reshaping Britain’s large fleet market.

To protect their companies, suppliers in construction and business support have to adapt to ensure they remain competitive in future.

This survival-of-the-fittest environment has driven a string of recent mergers and acquisitions, as ‘size matters’ in meeting the wide-ranging demands of the public sector.

The most recent is Kier’s acquisition of road maintenance provider May Gurney.

The £221 million deal brings together two heavyweight companies and two of the biggest fleets in the country.

Overall, 6,000 May Gurney employees have joined the 10,000-strong Kier Group team.

Like Kier, May Gurney provides nationwide coverage, which complements Kier’s existing market presence in the services, construction, property and housing sectors.

Kier is listed in this year’s Fleet200 as the fourth biggest fleet in its sector, with 2,100 cars and 2,400 vans. May Gurney, which itself swallowed Translinc in a deal announced in 2011, is listed in seventh, with 850 cars and 2,150 vans.

Based on these figures, their combined fleet would be 2,950 cars and 5,550 vans, making it one of the biggest fleets in the sector with 8,500 vehicles, equalled only by Balfour Beatty Fleet Services.

It also becomes one of the 10 largest fleets in the country, although this assumes that the joint businesses won’t see any change in their fleet sizes as a combined entity. But there is almost certain to be overlap in terms of the location and type of vehicles currently being operated, although sources at Kier say it is too early to say what might happen to the fleet.

Margins are tight in this industry sector (Kier’s latest accounts show revenue of £2bn, but pre-tax profits are ‘just’ £70m) and fleet is one of the most costly parts of any business, so operating it cost-effectively will play a critical role in ensuring the acquisition delivers value to shareholders.

It will also be vital to ensure the enlarged business can compete strongly in cost terms for a steadily reducing number of public sector contracts against other providers that are also fighting to protect revenues.

The Financial Times recently reported that 60% of outsourcing contracts last year came from local authorities.
It cited research claiming that about half of council waste management services were privatised, as were 23% of human resources, IT and payroll functions.

The annual Fleet200 research report produced by Sewells Research & Insight and Fleet News has revealed that while local authorities are putting more services out to tender, they are using a smaller number of suppliers to generate savings as part of their attempts to cope with a 28% spending cuts programme that runs to 2015.

Like the bluelight fleet sector, local authorities recognise that managing fewer relationships is more cost-effective, and as a result they are joining forces with other councils to create much larger contracts with the potential for substantial savings because they are directing a large volume of business to a single supplier.

Bringing Kier and May Gurney together makes sense, therefore, as it can win and manage larger, bigger contracts more cost-effectively in the long term.

It is already expecting to service 65 local authorities, collect rubbish for 3.3m households, and repair 900,000 council homes a year. It will also maintain 22,000 miles of roads and 500,000 street lights.

Kier Group chief executive Paul Sheffield said: “Our decision to acquire May Gurney represented a fundamental part of the group strategy to significantly grow and diversify our services business, not only giving us a greater critical mass in this sector but also a more complete offering to a wider range of customers. Now we are better placed in the market to deliver more to existing and new customers.”

The deal is the second in six months affecting companies in the facilities management sector.

Earlier this year, Amey confirmed the acquisition of Enterprise in a £385m deal bringing together 7,377 cars and vans. Amey now operates more than 320 contracts, providing a range of services including utilities, highways, waste management, rail, justice solutions, social housing and facilities management. It has a turnover of £2.3bn and 21,000 employees.

Author: John Maslen