Over the last twelve months RSK has engaged in a heightened level of acquisition activity reflecting its goal to become the number-one environmental services firm in the UK, as well as more geographically diverse ambitions. Its M&A-led growth strategy financed by debt-funding facilities offers certain advantages, as we hear from CEO and cofounder Alan Ryder.
During the last financial year ending March 2019, RSK racked up no less than twelve acquisitions (see list below), building on the seven in 2017/18 and three in 2016/17. All told since 2016 the group has acquired a total of 22 companies, adding a broad range of capabilities - ranging from environmental consulting to drilling contracting, geotechnical engineering, pile testing and habitat creation - to its ever-diversifying mix of services.
But this is not diversity for diversity’s sake. It is a calculated move to shore up RSK’s life-cycle offering and to provide a one-stop-shop. The launch of a dedicated habitat creation business last year and subsequent acquisition of 15-strong habitat management company Twig (EA 13-Nov-18), for instance, was felt to be a natural extension of its ecology consultancy services. The rationale being why recommend an external contractor to undertake habitat improvements when RSK could do it itself as part of an end-to-end offering.
The impact of RSK’s bold acquisition strategy can be seen in the firm’s financials. On a pro-forma, unaudited basis, revenue grew by 71% to £250m last year (2018/19), while operating profit (EBITDA) is expected to come in at £25m. Over the last twelve months the company's workforce expanded by over 40% with an additional 950 employees taking the total to c3,000. Ten years ago it had around 950 staff generating annual revenues of c£63m, so quite an impressive transformation in the last decade.
Business model perks
A key part of RSK’s growth plan is the use of debt-funding mechanisms to acquire market share. In 2015 the firm secured a £33m loan from private equity firm Permira to help recruit 200 staff (EA 17-Jun-15). The firm then went on to expand the Permira facility to £140m (EA 29-Nov-17). And late last year RSK announced a £315m debt facility agreement with Ares Capital Europe to help it achieve an ambition to "double in size" again over the next few years (EA 18-Dec-18).
RSK’s CEO Alan Ryder - who has headed up the business for thirty years since its inception in 1989 - spoke frankly of the financing set up, telling Environment Analyst: "Permira and now Ares have given me the financial backing to take the company forward – but without imposing a private equity mindset. Our financial backers are not involved as a shareholder and therefore not hoping to benefit from a sale of the business. I think that brings a different approach than you see in many other similar businesses; our financiers are comfortable provided that the debt can be repaid and the interest costs serviced."
The £315m facility secured with Ares paid off RSK’s existing facility with Permira. It includes a £100m drawn facility, a £100m committed acquisition facility and a further £100m incremental acquisition facility. A £15m revolving credit facility was also put in place with NatWest. But as we all know debt has to be serviced, repayments have to be made, and should you default the consequences can be dire. So how has Ryder sought to protect himself and his company from becoming over-leveraged?
"Our strategy is that we only invest money that results in a reduction in leverage," he explains. "And so although we have a lot of debt – each time we make an investment the leverage reduces. This approach is a cornerstone to our investment strategy."
Nevertheless the key challenges are not always financial. Integrating almost new 1,000 staff from a wide variety of backgrounds in the course of a year is no easy task. "It’s a lot of hard work and early starts with a lot of travelling and by having a great team around me. The leadership team has been together for years and we all know what we are trying to achieve and we all support each other," states Ryder.
International expansion plan
RSK has a clear strategy to expand in other European markets, and while the dot-joiners out there may assume this move has something to do with Brexit, the reality is much more practical, as Ryder explains: "We are already quite large in the UK, but there are huge markets on our doorstep - Germany, France, Italy - where we are still relatively small. We could take our strategic approach into these countries and build a much bigger business."
Earlier this year, RSK acquired the German environmental and geotechnical engineering firm Dr Tillmanns & Partner (EA 12-Feb-19). Headquartered in Bergheim in North Rhine-Westphalia, the purchase adds 20 geologists, mineralogists and environmental specialists to the group’s German business, RSK Alenco.
Outside of Europe, RSK is most interested in Africa, although it is also keeping a close eye on opportunities in India, Australia and the wider Asia Pacific region. Ryder speaks with excitement and passion about the company’s prospects on the African subcontinent, from where he has been spending a lot of time recently fostering this nascent part of the business. He believes Africa’s vast natural resources, pollution problems, growing population and demand for environmental protection make it fertile ground for RSK.
"We are very busy currently in East Africa – and have rapidly growing businesses in Tanzania, Uganda and Kenya. I love being there, the excitement of building a business in an emerging market, where we can do good things and make a difference. It is very satisfying."
Its East African operation seems reminiscent of RSK’s push into Iraq over five years ago (EA 27-Jul-14), where RSK now employs over 100 nationals from the Basra province, many in the country’s only internationally accredited environmental laboratory.
Meanwhile, in India RSK has established a digital-oriented business and is using the deluge of emerging IT graduates to develop apps, manipulate data and create innovate digital platforms to support the business more broadly.
Keep calm and carry on
Ryder seems very content with the current company strategy and business model, and sees no immediate reason to change. RSK has made six purchases with its current £315m war chest and its seems highly likely that more will soon follow, as it strives to expand internationally as well as cement its position in the UK.
"I believe that to be sustainable business you always need to be growing – and in that way you create opportunity for everyone in the business," said Ryder. "We have no specific end-point in mind. A few years ago we set a target of achieving an EBITDA target of £25m by 2025. That seemed a stretch when we set the target, but we have met it 5 years early so we need a new target."
"I would quite like to see RSK become the premier environmental services firm in the UK. Our strategy is very different from our competitors – we offer an integrated solution of technical services, first class research and consulting. No one else offers the breadth of service that you find with RSK: and that is a consequence of our strategy."
With the majority (c65%) of RSK’s group income generated from projects based within the domestic market, no crystal ball gaze would be complete without considering the impacts of Brexit. Despite the last three years offering the industry no more certainty than it had the day after the vote to leave, Ryder is not overly concerned.
"I do see Brexit as an unknown business risk," he says. "But our approach is to be as diverse as we can be, and thereby minimise our exposure to anyone client or geography or service line. We have looked at our clients and our supply chain and do not see any significant exposure.
"Frankly, I am bored of Brexit and tend to ignore it. I can’t change it, so we will deal with the hand we are dealt and make the most of it."
For Ryder mantra seems simply to be ‘keep calm and carry on’.
RSK M&A activity in the last twelve months
- April 2019 - Drilling Supplies & Hire Services - 13 staff - Newcastle-HQ equipment supply and engineering company that services the site investigation, geothermal and water well markets across the UK - funded by Ares (£315m debt fund)
- March 2019 - Headland Archaeology - 170 staff - Edinburgh-HQ heritage and archaeological contracting services provider to the development and construction sectors - funded by Ares
- February 2019 - Dr Tillmans - 20 staff - Bergheim, Germany-HQ environmental and geotechnical engineering firm specialising in land and groundwater contamination, remediation, hydrogeology, soil mechanics and landfill planning - funded by Ares
- January 2019 - Pellings - 125 staff - London-HQ surveying, architecture, planning, project management and facilities management services for housing, education and healthcare projects - funded by Ares
- December 2018 - BTS Group & TBF Contracting - 200 staff - Suffolk-HQ - BTS is an arboriculture support business for utility companies across the UK. TBF Companies include traffic management services business and a scaffolding business in support of utility and construction business - funded by Ares
- November 2018 - PB Drilling - 11 staff - Wigan-HQ sub-contract drilling company - funded by Ares
- November 2018 - Twig - 15 staff - Horsmonden, Kent-HQ - habitat management firm specialising in ground maintenance, ecological contracting and solar farm maintenance - funded by Permira (£140m debt fund)
- October 2018 - CAN Geotechnical - 250 staff - Chesterfield-HQ ground engineering, structural installation and maintenance provider to the UK construction and civil engineering markets in the UK - funded by Permira
- April 2018 - Non Destructive Testing (NDT) Services - 20 staff - Nottingham-based pile testing engineering company contracting to the construction sector - funded by Permira
- April 2018 - Copeland Wedge Associates (CWA) - 39 staff - Birmingham-HQ consulting civil and structural engineers - funded by Permira
- March 2018 - Central Alliance - 80 staff - Wakefield-HQ ground investigation, geo-construction, training, technology and survey services to the UK construction, defence, rail, utilities and transport sectors