Strategic Analysis and Valuation of ISS A/S

Nicolai Thorsell

Student thesis: Master thesis


The main objective with this thesis is, through a broad and holistic view, to address the value of the privately owned ISS in light of the failed acquisition offer made by G4S in the fall of 2011, based on a strategic analysis, an accounting analysis and a DCF valuation. The first part of this thesis seeks to describe and analyze internal factors within ISS and external strategic factors, which lead to a forecasted budget of operational drivers of ISS. ISS is a highly leveraged global and dominant service provider. Based on the strategic analysis, I find the single service industry characterized as a very competitive industry. There are, however, organic growth opportunities present within the integrated facility service industry, especially on the developing markets. It is concluded that ISS’s strategic aim is organic growth; they are mainly positioned on the European market and are vulnerable to financial and macroeconomic turbulence. The profitability of ISS is negative and caused by negative SPREAD, declining ROIC and a low operating margin. However, the profitability is expected to rise in the future. It is forecasted that the future annual growth rates will be at a moderate 5-6% level, combined with cost reduction, which will result in a positive yearly profit margin. The second part applies the findings and assumptions of the strategic analysis and the budgeting by the use of different valuation methods. The Discounted Cash Flow method represents the primary valuation method using the secondary valuation method, the peer group multiple valuation, as a sanity check. While determining the value of ISS, the owner’s cost of debt and the owner’s required rate of return on equity are calculated to be 7.35% and 6.66%, respectively. This results in a WACC of 5.9% and an ISS equity value of DKK 15,258 million. The peer group multiple valuation of ISS is used as a comparable method to the DCF; here, the Equity value is calculated to be in the range from DKK 14,551 million to DKK 16,147 million. The primary valuation method is considered to be within a reasonable spread from the secondary method. In the fall of 2011 G4S made a bid to acquire ISS at a price of approx. DKK 13,000 million, which is less than the calculated value of ISS. First of all, the thesis was produced close to a year after the bid with new internal and external conditions. Secondly the sensitivity of the DCF method is characterized as significant, where small changes in WACC especially, including beta and the market premium, can explain the difference in value. The ISS equity value of DKK 15,258 million is thus characterized as being fair.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2012
Number of pages98