Business Services Sector Comment – June 2015

Date

This month saw leading testing, inspection and certification (TIC) company SGS SA complete its 42nd acquisition in the last three years.

Swiss-based SGS SA has pursued an aggressive global investment strategy since the end of 2010. The strategy has centred on value-accretive acquisitions that help to build complementary capabilities and reinforce the group’s market-leading position across all of its ten divisions. This month’s tuck-in acquisition of SVA Ltd is further evidence of this strategy and comes only a week after the purchase of US-based Testing Services Group LLC. UK-based SVA Ltd was only established in 2010 but has achieved exceptional growth and now reports an annual turnover in excess of €19m. The acquisition will expand its service offering to UK retailers and food manufacturers, provide additional testing capabilities and help to build geographical presence across the Midlands, Sussex and Dublin.

Bolt-on acquisitions continue to form a key part of leading incumbents’ growth strategies. The ability to access new technologies and accreditations through an acquisition is significantly easier than looking to develop these capabilities organically. Furthermore, leading players are often geared up to manage M&A processes through dedicated teams and have strong balance sheets with stable cash flows to fund them.

One of the standout deals in the sector so far this year has been the sale of Helsinki-headquartered Inspecta Group Oy to Netherlands-based ACTA Holding BV, the holding company of Kiwa NV and Shield Group. Inspecta has developed into a leading TIC player in Northern Europe, having expanded into Sweden in 2005, and now has branches in all the Scandinavian countries, Baltic states and Poland. Primarily, the company provides inspection services for installations in the process and manufacturing industry, refining, electricity generation and mining, and – thanks to recent acquisitions – it also deals with installations in buildings such as lifts, fire safety and ventilation. The transaction, which was reported at a deal value of €200m and an EV/EBITDA multiple of 14.0x, reflects a further successful exit for 3i which has already enjoyed success in the sector having sold Inspectorate to Bureau Veritas for €600m back in 2010.

A number of private equity funds have taken a keen interest in the sector due to its strong growth profile, scope for bolt-on acquisitions and potential to realise investments at double digit EBITDA multiples. A key attraction of selling to private equity is the access to significant capital to help fund these acquisitions. The recent acquisition of Inspecta by NPM Capital’s portfolio company Kiwa is a prime example. Other PE-backed TIC companies which have been acquisitive include 3i-backed Element Materials Technology, which acquired TRaC Global Ltd for €60m in March 2015, and Bridgepoint-owned LGC Ltd, which acquired US-based Biosearch Technologies Inc.

Over the last five years, private equity exits have typically come in the form of other, often private equity backed, trade players looking to seize the rare opportunity to acquire a TIC business of substantial scale. Examples include: CBPE’s exit of Stewart Holdings Group Ltd to ALS Laboratory Group, 3i’s exit of Inspectorate and Inspecta Oy, US-based Bolder Capital’s exit of Galson Laboratories to SGS; and Singapore-based investment holding company Huan Hsin Holdings Ltd selling its stake in QuieTek Corporation to DEKRA SE. However, whilst trade exits have dominated the landscape, both the listings of Applus Services and Exova provided a successful exit for Clayton, Dubilier & Rice and Carlyle Group respectively. In both cases, the private equity house decided to retain a significant minority equity stake going forward.

At Clearwater International, we believe the sustained high level of M&A activity is set to continue and this will be driven by both PE-backed trade players and the larger listed TIC businesses. The listed players are financially strong, trade at high multiples and as such are comfortable with paying premium multiples for SMEs that help to broaden the service matrix. We also expect to see a couple of new financial investors enter the sector, provided that they are able to identify the appropriate platform opportunity.

 

Notable Business Services Deals

L-3 Communications Holdings Inc, the listed US-based prime contractor in aerospace systems and national security solutions, has acquired CTC Aviation Group Ltd, the UK-based company providing airline crew and pilot training courses, from UK-based private equity firm Inflexion Private Equity Partners LLP for a cash consideration of €196m.

Oxford University Press, the UK-based publisher and distributor of print and digital books, has acquired Epigeum Ltd, the UK-based provider of online training courses. The deal is estimated to be valued at €15m.

Horiba Ltd, the listed Japan-based technology group which manufactures scientific analysers, engine emission analysers and environment monitoring equipment, has agreed to acquire MIRA Ltd, the UK-based vehicle engineering and consultancy company. The deal is estimated to be valued at €117m.

Palletline plc, the UK-based company engaged in transporting palletised goods, has acquired S&S Distribution Ltd, the UK-based provider of warehousing, freight and other transportation services.

Accenture plc, the listed Ireland-based management consulting, technology and outsourcing company, has agreed to acquire Javelin Group Ltd, the UK-based provider of retail strategy consulting and digital transformation services, for an undisclosed consideration.

The management of Morris Vermaport Ltd, the UK-based company engaged in designing, installation and maintenance of lifts, has agreed to acquire the company from Mr Colin Davies for an undisclosed consideration.

Hamptons International Ltd – the UK-based estate agency services company which deals in residential properties in the middle or upper price ranges and a part of listed UK-based real estate and financial services group Countrywide plc – has acquired Greene & Co, the UK-based estate agency, for an undisclosed consideration.