Roll-up of Testing, Inspection and Certification Market

In an era where quality assurance and risk management have become pivotal to every industry, the significance of testing, inspection and certification (TIC) services has never been more pronounced. As we navigate through the complexities of global markets, the TIC sector is witnessing a transformative phase – a comprehensive roll-up.

What is TIC

The Testing, Inspection and Certification Market is a dynamic and rapidly evolving sector that plays a crucial role in ensuring product safety, quality and compliance with regulations across various industries. Overall, the products and services should meet  regulatory and industry standards to protect consumers and the environment. This market encompasses a wide range of services, from testing and inspection to certification, which are essential in mitigating risks, improving efficiency and facilitating smooth market access.

Roll-ups / Buy  &Build in TIC in Europe

The TIC sector in Europe has seen a significant M&A activity from both private equity and trade consolidators over the last five years. The strengthening regulatory landscape across various sectors, along with specific growth drivers within individual sub-sectors, has underpinned the ongoing attractiveness of TIC sector for investors. Buy-and-build strategies have played an important role in driving the growth of TIC, as incumbent players seek to leverage the benefits of scale to address a broad range of sub-sectors and unlock further synergies.

In the TIC market, Europe has been the dominant M&A geography, with 48% of the targets acquired in the last decade located here. Following cases illustrate the strong interest of PE firms in the TIC sector in Europe, driven by high levels of recurring revenues.

In 2021, CAG Groep, a TIC company, was acquired by SOCOTEC Group from Gate Invest. In the same year, Warburg Pincus, a global private equity firm, acquired a significant stake in NSF International, a leading global public health and safety organisation. NSF International provides testing, inspection and certification services in various sectors, including food, water, health sciences and consumer products. As another example, Oakley Capital, in recent years,  has been active in the TIC sector, acquiring various businesses to build a strong portfolio in the industry. One example is their investment in Schülerhilfe, a tutoring service that also provides certification services for educational programs.

Unconsolidated Swiss Market

The Swiss market is one of the few in Europe that remains relatively unconsolidated. Switzerland is home to a significant number of small and medium-sized enterprises (SMEs) that provide specialised TIC services. These companies focus on niche markets or specific industries, offering tailored solutions that larger firms might not provide. The high prevalence of these SMEs leads to market fragmentation and less consolidation. “TIC appears to be an attractive fragmented market in Switzerland which we have been carefully following for quite some time now. We aim to launch a Buy & Build platform in that space and are currently developing a pipeline of investment opportunities.” – adds Fabian Kroeher.

Additionally, Switzerland’s regulatory framework is complex and varies across different cantons. This decentralisation can create barriers for large TIC firms attempting to establish a consolidated market across the country. Whereas smaller, local firms often have the advantage of better understanding and navigating these regional regulations, maintaining their market share and contributing to the unconsolidated market.

Switzerland’s economic stability and strong sectors, such as pharmaceuticals, finance and manufacturing, provide a robust environment for TIC companies. Many of these sectors demand highly specialised TIC services, which local firms are well-positioned to provide, reducing the impetus for consolidation. Other factors contributing to the Swiss TIC market being unconsolidated are cultural and language diversity, strong local expertise and customer preference for local providers.

Swiss Market Overview

The Swiss market, particularly in the context of the TIC industry, features a unique and dynamic landscape of SMEs operating independently. Its fragmentation is reflected in the fact that, as of 2021, there were 723 companies in the Swiss TIC market, which is valued at CHF 2.7 billion and has been growing at a rate of approximately 4% annually. In addition, the Swiss TIC market is characterised by high standards of quality and innovation. Despite challenges such as high operational costs and regulatory complexity, the market presents significant opportunities for growth driven by technological advancements, sustainability trends and the robust demand from high-value industries.

In summary, the TIC market, particularly in Europe, is a dynamic and evolving sector. The trend of roll-ups and buy & builds is shaping the industry, offering opportunities for growth and consolidation. The Swiss market, while currently unconsolidated, presents potential for future development in the TIC sector. With the same approach, Fabian Kroeher concludes: “In the world of quality and safety, the Testing, Inspection, and Certification market roll-up is the natural way of market evolution.”