Programmed Maintenance Services believes its $652 million takeover of Skilled Group will enable it to compete with larger global workforce and maintenance providers.
Labour hire business Skilled has agreed to Programmed's sweetened offer after rejecting earlier proposals.
The offer values Skilled's shares at $1.79 per share, giving its shareholders 25 cents and 0.55 Programmed shares for every Skilled share they own.
Programmed chief executive Chris Sutherland denied the tie-up was due to a weak Australian economy and the end of the mining boom hurting both companies.
However there was a global trend of its industry rivals getting bigger because customers wanted larger companies to be able to sign longer-term 20-year plus maintenance contracts, he said.
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Programmed had in the last year inked a 38-year maintenance deal for Wollongong University's student accommodation, two contracts with New Zealand schools and a 14-year deal with a Queensland prison near Gatton.
"Our global competitors are a lot larger than us: Circo and Compass who are in this Australian market talking with major companies about how they can outsource staffing, maintenance and facility management operations," Mr Sutherland told AAP.
"This puts us on a stronger footing to compete.
"One way to be more efficient is with scale, if you want to introduce IT technology, online systems and tools it costs money and you are better off leveraging across a larger business."
The new company would employ 25,000 people and be worth about $755 million in market capitalisation, meaning it was a good chance of being in the ASX200 index, with access to more investors.
The takeover of Skilled ends the 50-year-old company's existence as its own company, including 21 years on the stock market.
Skilled is strongly exposed to the oil and gas industry, which is in a cyclical downturn and lower prices, so the takeover by Programmed would in theory create a more diversified company.
Mr Sutherland said he believed the best opportunities for new business were in the growth areas of education, health, aged care, tourism and recreation and other forms of public infrastructure.
"We think this deal is quite complementary - we are very strong in the property maintenance and infrastructure areas, they are very strong in industrial manufacturing and mining," he said.
"But every company in Australia needs staff and maintenance."
Skilled shareholders will own 52.4 per cent of the combined company.
The merger is expected to lead to cost savings of more than $20 million in the first year, according to both groups, though the cost of integrating the two companies is expected to be $17 million over three years.
Programmed shares closed up two cents at $2.82, with Skilled 11 cents higher at $1.655.
