Mitie Group LON:MTO has confirmed today that it is in discussions with Marlowe LON:MRL regarding a possible offer for the entire issued and to be issued share capital of Marlowe. Shares in Marlowe had already been responding to the rumour mill, bid up over 12% today.
There has been substantial new buying of Marlowe stock since 23 April, which has seen the stock price rise over 30%. Marlowe works with companies to ensure compliance with regulatory requirements like food hygiene or fire safety. With a growing burden of such regulatory demands on companies, it comes as no surprise to see that Marlowe has become increasingly profitable.
Marlowe HY results for the six months to 30 September 2024 saw a 4% increase in revenues and a -1% loss in adjusted EBITDA. Revenues from continuing operations were also up. The EPS figures also looked very positive.
Marlowe said at the time that its forward-looking strategy is to focus on the highly regulated business-critical service markets across testing, in spection and certification (TIC) activities, with strong recurring revenues based on non-discretionary customer spend and underpinned by regulatory and insurance requirements.
Mitie must confirm offer by early July
Mitie stressed today that that there can be no certainty that any firm offer for Marlowe will be made, nor as to the terms on which any firm offer, if made, might be made.
Mitie is required, by not later than 5.00 p.m. on 2 July 2025, to either announce a firm intention to make an offer for Marlowe or announce that it does not intend to make an offer. This deadline can be extended with the consent of the Panel on Takeovers and Mergers.
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What is the Marlowe Group?
Marlowe operates in specialist, regulated markets providing services that are largely non-discretionary for its customers and therefore it is largely insulated from the UK economic cycle. Each of its markets have structural growth characteristics and benefits from onerous and evolving regulations with increasing enforcement action from regulators.
Compliance budgets continue to grow at attractive rates thanks to the increasing focus on ESG at the corporate level, and demands for compliance with the health and safety of staff. The risks and cost of not being compliant can be huge with fines reaching over £1 million in the most severe cases and therefore significantly outweigh the cost of implementation.
Marlowe’s operations are capital light at around 1% of revenues and the company has a modest working capital outflow relating to organic growth leading to strong cash generation. Management has said they plan to redeploy this into further bolt-on acquisitions and opportunistic share repurchases.
Long customer relationships
Marlowe benefits from long customer relationships lasting over 10 years on average which attest to its best-in-class compliance rates and service. Additionally, the company’s services are usually delivered on multi-year contracts, often three to five years, which provides predictable revenue streams, with c75% revenues being recurring in nature.
Marlowe provides its services to over 27,000 customers across a huge range of sectors with no one customer accounting for more than 4% of revenues.
Marlowe’s TIC division is expected to deliver approximately £325 million of revenue and adjusted EBTIDA in the region of £40 million for the 12 month period to 30 September 2025, Head Office costs are expected to be £4 million over that 12-month period.
