What the TIC Industry Should Know in 2018

Since the 4th quarter of 2013, the Testing, Inspection, and Certification M&A market has been consistently active, with a high volume of deals and high average transaction multiples. This trend is likely to continue into 2018.

TIC business owners considering a sale should know now is a great time to sell.

From January 2013 through through December 2017, there have been 255 acquisitions made of U.S.-based TIC businesses. Of these, 48% of targets were acquired by strategic parties; the remaining 52% were purchased by financial investors. The take-away is clear – there is an insatiable appetite for the TIC subsector.

Strategic parties, particularly those that are publicly traded, are facing pressure from investors to augment steady organic growth with acquisitions. Forward price-to-earnings ratios amongst publicly-traded TIC companies are approximately 25% higher than historical averages, implying that organic growth alone does not justify current public valuations.
Many public companies must make acquisitions to reach their analysts’ consensus earnings estimates, or face negative share price adjustments if announced performance misses expectations.

Financial investors view the TIC landscape as favorable due to its highly fragmented global nature (i.e., many operators, which promotes industry buy and build growth strategies), and high margins and free cash flows, which facilitate the use of debt required in the capital structure to execute successful leveraged buy-outs.