Mears shares fall as it confirms purchase of Mitie’s social housing business

Social housing provider Mears today said it has bought industry-related assets from outsourcing firm Mitie's property management division, in a transaction valued a £35m.

Mears said it would finance an initial cash consideration of £22.5m for the deal via a placing of new ordinary shares on the London Stock Exchange. A deferred consideration of the remaining £12.5m will follow, subject to certain conditions being met relating to the company's earnings over the next two years.

Mears' share price has fallen as a result, dropping as much as seven per cent in early trading.

The deal follows a ramp up in restructuring efforts for Mitie, which offers services from property management to healthcare, after the company had issued several profit warnings in recent years. It sold off its pest control arm to Rentokil Initial in October.

The acquisition encompasses a takeover of Mitie Property Management (MPM) and MPS Housing. MPM employs more than 1,000 people to date, providing repair services to over 30 social housing providers across the UK.

Mears said it expects the deal to add at least £100m to its continuing annual revenue, increasing its order book by around £200m and providing a bid pipeline of around £800m due to opportunities to cross-sell its own services into the Mitie customer base.

Scheduled to complete by the end of this month, the deal is expected to have a positive impact on earnings next year.

For the last financial year ending in March, MPM's revenues were £128m and reported an adjusted profit before tax of £5m. As of the last quarter ending in September, MPM had gross assets worth a little over £40m.

"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," said Mitie chief executive Phil Bentley.

"The sale of MPM to Mears will allow Mitie to continue to focus and build scale in its core businesses."

Mears' chief executive David Miles added: "I am delighted with the acquisition of Mitie Housing which will further strengthen Mears' market leadership and contract profile in social housing.

"Given our strong operational platform and differentiated service delivery, together with our proven ability to turn around underperforming businesses, I am confident that we will deliver significant improvements to Mitie Housing's contracts, customers, tenants and employees."