Takeover to see G4S pass the one million staff mark

G4S, which runs four prisons and is training security guards to work at the London Olympics, will develop its business in areas such as catering and cleaning after agreeing to buy Denmark-based ISS.

ISS is owned by private equity companies EQT and GS Capital and boasts high-profile contracts with Citigroup and the Foreign and Commonwealth Office.

The deal will mean that G4S, which was already the FTSE 100’s biggest employer, will have a total of 1.2 million employees.

G4S has launched a £2bn cash call to shareholders to help pay for the deal, which is expected to lead to cost savings of £100m a year by 2014.

G4S shares were down 13 per cent following the announcement as investors balked at the scale of the proposed deal and rights issue plan.

Kevin Lapwood, analyst at Seymour Pierce, said: “Although G4S has in the past proved effective at integrating large acquisitions, this will double the size of the group and there is bound to be some transactional risks in the short term.”

But G4S chief executive Nick Buckles said the deal will transform the group, which employs 635,000 people. The two companies overlap in 40 countries, where there will be significant opportunities to make cost savings.

“There’s a real underlying customer demand for integrated services. By putting these together we can deliver lower cost and better service over the longer term,” he said.

The deal will also allow G4S, which already operates in 125 countries, to expand in markets such as Spain, Italy and Switzerland, where ISS has a strong presence.

In particular, it is understood that ISS will help it expand its catering offer.

The combined revenues of the group will be £16bn, more than double the £7.4bn of G4S in 2010. The deal will see some £1.5bn paid to the owners of ISS, half of which will be in cash, with the other half in G4S shares.

G4S will take on about £2.5bn of extra debt as a result of the acquisition even after £2bn has been raised from shareholders. If the deal fails to complete, G4S still plans to raise money from shareholders, which it will use as a war chest to buy other companies.

G4S also reported overall organic growth of five per cent in the three months to September 30, although its profit margins were slightly lower. Mr Buckles said around 2,000 of the combined group’s staff will lose their jobs but that will be dwarfed by creating new positions.

“There’s a good chance we’ll be creating around 50,000 new jobs each and every year so in the scheme of things the job losses are not huge,” he said.