H1 2017 Update – Leading Testing, Inspection and Certification (TIC) Companies see sluggish growth, driving the need for more acquisitions
In August of 2017 we undertook a deep dive analysis of the largest businesses in the TIC market, comparing historic performance, acquisition activity and sector strategies. Key findings are summarised below however it is safe to say that 2017 has already proved to be an eventful year with the collective revenue of the top 14 business breaching the £26bn mark and acquisition levels looking like they will beat all records.
But what is the Testing, Inspection and Certification (TIC ) Sector?
The TIC sector services include assurance and validation activities for manufacturers and service providers to ensure they adhere to global regulatory standards, enhance product quality/performance and reassure consumers of their quality and safety expectations. Newer growth sectors include environmental, construction, energy and sustainability which are driven by international treaties. The overall market is estimated to be just under £200bn, with only £40bn outsourced to 3rd parties.
The global market (represented by the top 14 we have analysed as well as a very long chain of smaller and in-house) is serviced by a large number of organisations of all forms: listed on a stock exchange (SGS, BV, Intertek etc), backed by private equity (PE), privately owned, industry association or in-house.
However, the TIC sector holds a unique position when compared to other sectors as a number of unique factors provide long term revenue assurance for the TIC sector:
- Regulation – Increasing volume and complexity requires greater expertise and therefore services from the TIC sector.
- New products driving new testing regimes.
- Increased consumer awareness and fear of litigation, drives more regulation.
- Organisations desire to outsource non-core activities to “best in class” providers, who provide the complete range TIC services (and are often cheaper).
How is the TIC sector faring in the current economic climate?
Top 14 TIC Performances in 2016
Revenue: £26.2bn +£957m (+4%)
EBITDA: £3.29n +£78m (+2%) (Margin: 15%)
Due to the significant downturn in the global oil, gas and commodity markets big TIC revenues were only up 4%, which isn’t enough to satisfy stock market investors. EBITDA was only up a more modest 2%, but if you strip out acquisitions, most of the larger TICs are treading water. That said, they are generating cash and are eager to invest that cash, acquiring businesses which extend their service capability or geographic reach. For some TICs, acquisitions are the only growth opportunity.
How is the TIC sector developing?
Over the last 5 years, big TIC has invested over £5.1bn in acquiring businesses across the globe. The typical deal values range between £4m and £15m, with most of the larger TIC organisations engaging acquisition teams who are completing 10 to 20 deals per year.
The larger TIC spending has been sector specific: Healthcare incl. Life Sciences & Pharma; Environmental & Sustainability; Industrials incl. Aerospace & Infrastructure; Energy incl. Oil, Gas and Renewables. H1 2017 has seen a record £1bn spent by big TIC on acquisitions, with the UK and US continuing to be the most attractive countries.
With the downturn in O&G sector, emphasis is also on acquisitions which service multiple markets, to provide resilience against a downturn in any one market. These sectors include: Non-Destructive Testing (NDT) which services multiple industry sectors (aerospace, transport, infrastructure, oil & gas); Analytical Services; Supply Chain Assurance; Digitalisation, with the latter gaining in importance as the “Internet of Things” plays an ever increasing role in servicing customers needs as well as a tool to improve TIC’s own margin levels by driving operational efficiencies.
Rupert Lewis works at Premier Corporate Finance’s Manchester Office.
He has extensive knowledge within the TIC (Testing, Inspection, Certification), FM/Support Services and Retail sectors.