LONDON (ShareCast) - (Sharecast News) - Outsourcer Mitie has agreed to sell its social housing business - Mitie Property Management and MPS Housing - to Mears Group for up to £35m in cash.
The consideration for the deal comprises an initial payment of £22.5m in cash at completion and a deferred consideration of up to £12.5m, payable in cash over two years post completion subject to the achievement of certain performance milestones.

Mitie said most of the proceeds will be used to strengthen its balance sheet and accelerate partial repayment of the deficit under its defined benefit pension scheme, with the balance being reinvested in core businesses.

Chief executive officer Phil Bentley said: "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 to deliver the critical environment reliability and cost efficiency that our clients increasingly demand from their 'Connected Workspace'.

"MPM is a specialist provider of repairs and maintenance services to the social housing sector. The sale of MPM to Mears will allow Mitie to continue to focus and build scale in its core businesses. Mears is highly regarded in the social housing sector and has the specialist skills required to deliver to its client base."

MPM provides property repairs and maintenance services to the social housing sector, employing over 1,000 people and providing property services to over 30 social housing providers in the UK. It was previously part of Mitie's property management division, which also included Mitie's commercial painting and roofing refurbishment businesses.

Mears said on Monday that the acquisition, which it plans to fund through a placing, is expected to be earnings-enhancing next year.

Chief executive David Miles said: "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. "

At 0930 GMT, Mears shares were down 6.5% to 344p and Mitie shares were up 2.2% to 150.20p.

Liberum said this was a "strategically sensible" deal that should strengthen both balance sheets.

"For Mears, the acquisition strengthens its position in the social hosing market where it is market leader. It has strong form in integrating social housing assets. We have little doubt that the business will be worth more in Mears' hands than Mitie's.

"By adding EBITDA at no cash cost, the deal strengthens Mears' balance sheet. For Mitie, its property management business did not fit the strategy. The £22.5m to £35m of proceeds help it to de-lever."

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