Testing, Inspection & Certification – Sector Report

TIC valuations at historic highs. For how much longer?

The M&A market for Testing, Inspection, Certification (TIC) has become even more favorable for sellers: a large number of transactions and valuation multiples are at historic highs, as trade-buyers target external growth and Private Equity (PE) eagerly pursue buy & build projects. We expect buy-side demand to remain extremely supportive in what is still a widely fragmented industry, where all of the large and mid-sized players are targeting double-digit growth rates.

Key insights:

  • Globally, it is full steam ahead for the M&A market thanks to a pickup in economic activity, a wider availability of low-cost financial debt (mostly ‘bullet’ and ‘covenant light’) and the growing presence of PE firms in the market.
  • The TIC sector is especially hot and seeing historically high returns for investors, due to extremely strong and resilient industry fundamentals.
  • Together the top 12 market leaders have closed more than 500 transactions since 2010. Interestingly, most are also embarking on strategic reviews to define 5-year plans: tapping new growth areas, developing and streamlining organizations (eg. digital capabilities) and considering divestments of single digit EBIT-margin businesses.
  • PE funds are aggressively seeking buy & build projects in the mid-market, where many dynamic high-growth companies with revenues of €10m to €100m are emerging. Around 70% of all TIC  companies with revenues of €50m to €1bn are already owned by financial investors.
  • Listed players are being valued at 16x EBITDA, on average, while transaction multiples have increased by 10% to 20% over the last three years – at 8x EBITDA for small-caps, and 11x for midcaps. Digitalization is a game-changer, and making a big impact on the customer offer.  The industry is moving away from traditional legacy control and inspection services towards more sophisticated  and integrated solutions.
  • In the current market environment the hottest segments for acquirers include building & infrastructure, which are both back on track; security; health & safety; energy efficiency; and also food & pharma.
  • We expect the M&A market for TIC to be even more active in 2018, as the industry tackles digital transformation and the bullish fundamentals continue to improve.
Michel Degryck
Michel Degryck
Managing Partner
France

“We are witnessing especially high buy-side demand in the TIC market from both PE investors and listed strategic acquirers. This is boosting valuation multiples for sellers, which are already at historic highs - although deal quality is dependent on various factors such as segment, capacity to scale up and the client value proposition. We expect 2018 to be even more active than 2017, as the bullish fundamentals continue to improve.

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