MHA | Strong fundamentals drive M&A prospects in the TICC sector

Strong fundamentals drive M&A prospects in the TICC sector

· Posted on: February 2nd 2024 · read

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Whilst economic uncertainty has impacted some sectors of the economy the Testing Inspection Certification and Compliance (TICC) sector is set to continue the strong M&A activity seen in recent years.

What is the TICC sector?

The sector encompasses a broad range of businesses which can be defined as including:

  • Built environment - building and building products.
  • Infrastructure - roads, pavements, groundworks and utilities.
  • Compliance and certification - people, process, and products i.e. Health and Safety, consumer products testing.
  • Food and life sciences - food certification, pharmaceutical testing.
  • Industrials - i.e. marine, industrial, decommissioning etc.

Globally the outsourced TICC sector is estimated to be worth c$100bn, and is highly fragmented with a small number of large players comprising c15% of the market with smaller corporates and SMEs comprising the remainder.

Why has the TICC seen strong and continued growth?

The sector has continued to grow through the economic cycle, primarily driven by the following:

  • Increased regulation and compliance, partly driven by disasters such as Grenfell.
  • Public and stakeholder pressures for organisations to take a more proactive approach to regulatory compliance and ESG.
  • Related to the above businesses are increasingly aware of the damage to brands through regulatory failures.
  • Trends for organisations to outsource compliance services due to increased regulatory complexity.
  • Software and technological developments such as SaaS platforms enable a move away from paper and spreadsheet based compliance tracking to comprehensive enterprise wide solutions.

The above combine to provide strong recurring revenues and organic growth opportunities.

Why has the sector provided strong M&A activity?

The sector has provided strong levels of M&A activity and PE appetite, this reflects a combination of highly favourable factors namely:

  • A large, growing and fragmented market providing opportunities for PE funders to execute buy and build strategies. PE backed British Engineering Services (“BES”) and Phenna Group provide examples of this in the UK market.
  • Attractive financial metrics above, particularly recurring revenues and flows support debt appetite for transactions.
  • The technological aspects such as SaaS platforms, IoT and AI solutions provide opportunities to corporates and PE funds seeking to invest in software and technology.

How can MHA assist businesses to take advantage of the exit planning opportunities?

The MHA corporate finance team has significant experience in the TICC sector working on a range of transactions including the sale of Lantei and Pavement Testing Solutions to BES and Phenna Group respectively, both large PE backed corporates seeking further acquisitions in the sector.

We have also been involved in EoT’s for businesses in the geotesting/environmental elements of the sector.

The key areas which business owners in the TICC should consider when evaluating their exit planning options include:

  • Ensure the recurring revenues and margin in the business are clearly understood and profiled
  • Know who your key customers are, and what is your USP?
  • Have a robust business plan with clear historic and forecast profitability.
  • Ensure the management team is robust with technical, financial and commercial expertise in appropriate areas.
  • Identify any key risks such as potential changes in regulatory environment, and ensure the business is prepared for any potential changes

The corporate finance team at MHA are focused on advising businesses on all aspects of corporate finance with a focus on transactions in the mid - market. If you are actively considering a transaction or would like to discuss the above further, please do not hesitate to get in touch.

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The technological aspects such as SaaS platforms, IoT and AI solutions provide opportunities to corporates and PE funds seeking to invest in software and technology. This has only helped grow M&A activity within the sector.


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