Security and traffic services provider MCS Services (ASX: MSG) has entered into a conditional agreement to sell its security business for a cash consideration of $3 million to Vibrant Services. MCS Security Group is the Company’s wholly-owned subsidiary and a leading supplier of security services at commercial property sites and retail shopping centres, principally in the Perth metropolitan and regional country areas of Western Australia. 

The Board of Directors carefully assessed the decision to sell the security business, considering the merits of retaining or divesting it. The primary goal was to safeguard shareholder value. But the decision also followed multiple factors, like the ongoing trend of major security contracts being awarded at the national level rather than the state level, heightened pressures related to workforce availability and labour costs, and the practical challenges of maintaining a business of this scale within the parameters of an ASX-listed public company primarily operating at the state rather than national level in the security sector.

In the second quarter of FY24, MCS Services reported a net cash burn of $242k for its security operations, while its Traffic division experienced a positive cash flow of $160k. The Company concluded the quarter with $1.1 million in cash, a decrease from the prior quarter’s $1.5 million. Simultaneously, director Matthew Ward stepped down in November to focus on family and other business commitments.

Underscoring its accumulating debt and underperforming segments, MCS Services decided to let go of its regional security arm.

Vibrant Service, the proposed purchaser, boasts extensive security operations in the Eastern states. The acquisition of MCS Security is poised to position Vibrant Service as a competitive national organisation. Known for providing security services across diverse sectors, including events, education, critical infrastructure, industrial and manufacturing, corporate, and retail, Vibrant Service directly employs its staff on a full-time, part-time, or casual basis. It also offers comprehensive risk management services as part of its holistic risk analysis process.

The agreement grants Vibrant Services a 30-day exclusivity period for due diligence, with completion targeted within 60 days of signing. The primary condition is obtaining shareholder approval for the sale. If approval is secured, the Company may need to re-comply with ASX Listing Rules for new acquisitions. 

There will be no changes in Board or senior management due to the Proposed Sale, and Vibrant Services is an arm’s length, non-related third-party purchaser.

Ultimately, the sale remains highly conditional, and completion depends on the satisfaction of several conditions within the agreement. These conditions include thorough due diligence enquiries by Vibrant Service, executing formal transaction documents, and obtaining necessary approvals for implementing the proposed sale.

he potential sale of the security business presents an opportunity for MCS Services to reassess its strategic directions and channel funds towards the next phase of operations. The $3 million from the sale is earmarked for debt repayment, estimated at $1.5 million, with the remaining balance allocated to working capital and growth across Australia.