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.
- 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.