G4S has a unique geographic footprint on which to build through bolt-on acquisitions which can add value to the group and provide enhanced shareholder returns
Our objectives and strategy
G4S has a unique geographic footprint on which to build through bolt-on acquisitions which can add value to the group and provide enhanced shareholder returns.
We will be focusing the majority of our acquisitions in the following areas:
- Where we can improve our market share
- Where an acquisition will start to drive outsourcing in key sectors
Our approach and progress
Re-investing free cash flow to drive further shareholder returns
Since 2008, G4S has made around £1bn of acquisitions (including acquired net debt), which have contributed significant revenue and operating profit and also provided additional growth opportunities. In 2011, acquisitions included the Cotswold Group Limited, the UK’s market leader in surveillance, fraud analytics, intelligence and investigations services, Guidance Monitoring, an offender monitoring technology business in the UK, a facilities services company in Brazil and Munt Centrale Holland B.V., a coin management service company based in the Netherlands.
The group will consider acquiring integrated facilities services businesses in the UK and US where the market has developed in that direction, but will be focusing the majority of its acquisition efforts in developing
markets, to either improve market share or where an acquisition will start to drive outsourcing in key sectors.
G4S expects to spend around £200m each year on acquisitions from free cash flow.
Disciplined M&A screening criteria
All acquisitions are reviewed by the group executive team and transactions over £5m also require board approval. For any acquisition to be considered, it must have a post-tax expected return on invested capital of at least the group’s weighted average cost of capital within three years. In practice, most acquisitions that are undertaken by the group have an expected return which is far above that level. For example:
- 12.5% return on invested capital post-tax within three years for smaller deals
- 10% return on invested capital post-tax within three years for medium sized/strategic deals
In addition to any acquisition meeting our strategic and financial objectives, since 2010 we have implemented a CSR checklist whereby new market entries and acquisitions are assessed against a range of business ethics and human rights criteria.
The group will be more active in its divestment strategy in 2012, particularly where a service line or business is not in line with the group’s core strategy, where a business is unable to reach the group’s internal margin targets or where an alternative parent could add or drive more value from a business. The proceeds from these divestments will be reinvested into acquisitions that can drive further growth for the group.