TEST & MEASUREMENT M&A HIGHLIGHTS Q Spotlight on the Non-Destructive Testing sector

Transcription

1 TEST & MEASUREMENT M&A HIGHLIGHTS Q2 17 Spotlight on the Non-Destructive Testing sector

2 TEST & MEASUREMENT M&A HIGHLIGHTS Q2 17 QUARTER 2 HIGHLIGHTS Strong sector performance continues into 17, with 74 deals in Q2 17 representing impressive year-on-year volume growth of %, despite a cooling off from the record highs experienced in the second half of UK sector activity remained steady with 17 transactions, broadly in line with prior year transaction volumes The non-destructive testing market is an area ripe for consolidation, with large players acquiring new technologies and enhancing their product portfolios BDO s T&M share price index reveals growth of 95.1% in the five years to June 17, with trading multiples averaging.7x EBITDA M&A multiples across all sectors have increased by 24% over the past five years in Europe and % in North America. STRONG M&A ACTIVITY CONTINUES INTO 17 While the record transaction volumes in the second half of are yet to be beaten, the second quarter of 17 involved 74 deals, representing impressive year-on-year growth of % Volumes were split equally between domestic and cross border deals, with the number of cross border deals declining slightly to 37 representing half of all transactions UK transaction volumes remained steady with 17 deals in Q2 17, broadly stable in comparison to Q1 17 and Q2 Transaction volumes across Europe (excluding UK and Ireland) grew 38% on prior year, despite a 19% decline on Q1 17. The UK and mainland Europe together represent over half of global deal activity in the sector Private equity has taken a backseat in 17, with only 7% of deals involving a private equity backer in the first half of 17, compared to 13% in. US & CANADA DRIVE T&M MARKET IN Q2 17 INTERNATIONAL DEAL VOLUMES BY SELLER GEOGRAPHY Source: MarketIQ Q2 15 Q3 15 Q4 15 Q1 Q2 Q3 Q4 Q1 17 Q2 17 US & Canada Europe (excl UK) Asia/Pacific UK Other M&A ACTIVITY SUMMARY - YEAR ON YEAR UK AND INTERNATIONAL M&A ACTIVITY BY QUARTER AND PE TRANSACTION ACTIVITY M&A ACTIVITY SUMMARY BY QUARTER UK AND INTERNATIONAL M&A ACTIVITY AND PE TRANSACTION ACTIVITY 74 deals deals deals deals Q2 Q2 15 Q2 Q2 17 Private Equity involvement UK buyer or seller All other transactions Q2 15 Q3 15 Q4 15 Q1 Q2 Q3 Q4 Q1 17 Q2 17 Private Equity involvement UK buyer or seller All transactions

3 T&M TRANSACTIONS ANALYSIS DOMESTIC TRANSACTIONS DRIVE GROWTH The number of cross-border transactions declined by %, with the proportion of cross-border deals reducing from 52% in Q1 17 to 5% in Q2 17 Domestic focus was a strong theme for the US & Canada region, with cross-border transactions representing only 2% of deals The UK continues to represent an attractive region for overseas buyers, with 9 UK companies being the target of cross-border acquisitions in the quarter Europe (excluding UK & Ireland) continues to represent a hub of cross-border investment, with 82% of all deals in the region involving an international acquirer Within Europe the main target countries were Germany with 5 deals in Q2 17, followed by Sweden and Finland with 4 and 3 respectively. The European countries with the most international acquirers were located in Luxembourg, Germany and France with 4, 3 and 3 cross-border acquisitions respectively. CROSS-BORDER TRANSACTION VOLUMES BY QUARTER Q1 Q2 Q3 Q4 Q1 17 Q2 17 Cross-border transactions Domestic transactions CROSS-BORDER TRANSACTION VOLUMES - BY BIDDER GEOGRAPHY, Q US & Canada UK & Ireland Europe (excl UK & Ireland) Asia / Pacific Cross border Domestic Other CROSS-BORDER TRANSACTION VOLUMES - BY SELLER GEOGRAPHY, Q US & Canada UK & Ireland Europe (excl UK & Ireland) Asia / Pacific Cross border Domestic Other QUARTER 2 HIGHLIGHTS Element Materials Technology BV acquired Exova Group plc, one of the world's leading providers of testing, calibration and advisory services, for m representing a 2% premium to Exova s average share price over the previous months and implies an enterprise value of approximately.5x Exova s adjusted EBITDA. The combined group is majority owned by Bridgepoint, an international private equity firm, and is expected to deliver annual revenues in excess of $7m and serve more than 4, customers worldwide. Ametek Inc acquired Mocon Inc, a provider of products and services that detect, measure and monitor gases and other chemical compounds for 5m, implying an enterprise value of 1m at 17.8x historical EBITDA. Mocon joins Ametek as part of its Process & Analytical Instruments Division within Ametek's Electronic Instruments Group. Mocon had sales of approximately $3 million in FY. Hitachi formed Hitachi High-Tech Analytical Science with the 8m acquisition of the Industrial Analysis division of Oxford Instruments Plc. The company's range of laboratory-based and robust high-performance in-field testing instruments deliver materials and coatings analysis that adds value throughout the production life cycle, from raw material exploration to incoming inspection, production and quality control to recycling. In May 17, Germany based Synlab International GmbH, a provider of medical laboratory services, acquired 1% of the share capital of ALControl Group Ltd, Hawarden, Wales. ALControl Group is a provider of environmental, food and oil analysis services and had a turnover of c. 9m for the year to March.

4 SPOTLIGHT ON THE NON-DESTRUCTIVE TESTING MARKET A SECTOR GROWING AT A RATE OF 7.8% PER YEAR Non-destructive testing (NDT) uses techniques to test objects for flaws and imperfections in materials, components or systems, without causing damage in the process. According to Markets and Markets, the NDT market is expected to be worth USD. Billion by 23, growing at a CAGR of 7.8% between 17 and 23. Ultrasonic testing accounted for the largest share in due to its versatility and capabilities of NDT inspection. MARKET DEVELOPMENTS Market growth is being driven by continuous advancements in electronics, automation and robotics, alongside the increasing adoption of the internet of things and need to prolong the lifespan of aging infrastructure assets. Advanced NDT services have grown in popularity, despite being more expensive than traditional methods, due to their effectiveness in proactively detecting infrastructural deficiencies and preventing future breakdowns. This area is anticipated to experience strong growth driven by cost effective technological innovations. NDT has had a major impact across many areas of infrastructure, as an example, rail breakages in the UK were running about 9 per year until. Network Rail then introduced an effective NDT program onto the track, which consecutively reduced the number of rail breaks per year, thus increasing rail network performance. As per the Rail Accident Investigation Branch, the number of rail breakages subsequently reduced from 919 in to 178 in 13. There are a vast array of testing techniques and services. Some examples of advanced NDT services include: Automated ultrasonic testing: uses ultrasonic computer scanners and software to accurately monitor discontinuities over successive inspection intervals and achieve reliable, repeatable and accurate results. Computerized radiography: captures digital radiographic images on flat panel screens so that they can be viewed in real time, digitally enhanced for increased detail and easily stored for future accessibility. Acoustic emissions testing: releases energy waves within a material that allow inspectors to listen to growing cracks and other forms of damage from materials under stress. Guided wave testing: involves sending controlled ultrasonic waves along pipe systems to determine areas of concern. Sources: Markets and Markets, IBIS World STRONG M&A DRIVERS There have been 4 deals completed in the NDT sector since the start of, with 48% of these deals involving either a UK buyer or seller. M&A within the NDT equipment market is driven by larger players enhancing their product portfolios, particularly as new techniques and technologies are developed. Expansion into new geographies is another key driver. The NDT market remains fragmented. That said, consolidation continues including the following examples: In December, Exova acquired NDT Limited a South Yorkshirebased NDT and radiographic inspection business. The business has a team of around specialists and achieved revenues of around 2m in 15. In May 17, Eddyfi Technologies Inc, a Canada based provider of high-performance NDT solutions for the inspection of critical components and assets within the oil and gas industries, acquired Technical Software Consultants Ltd for an undisclosed amount, a provider of detection/sizing and stress measurement systems, based in Milton Keynes. IMPACT OF NDT ON THE RAIL SYSTEM Number of rail breaks NDT DEALS BY YEAR Source: Allied Market Research Non-destructive Testing Market Number of deals H1 17 Source: MarketIQ, BDO Analysis

5 ECONOMIC OUTLOOK: GROWTH CONTINUES T&M SHARE PRICES STRONG PERFORMANCE CONTINUES SHARE PRICE PERFORMANCE COMPARISON 1 UK ECONOMIC GROWTH RESILIENT QUARTERLY UK GDP GROWTH Market capitalisation indexed at 31 January Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec- Dec-13 Dec- Dec-15 Dec- 1.%.9%.8%.7%.%.5%.4%.3%.2%.1%.% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q T&M share index FTSE 1 indexed S&P 5 indexed Source: Capital IQ Source: ONS and OBR forecast March 17 BDO s T&M index reveals growth of 15.9% in the T&M sector during the six months to 3 th June 17, outperforming both the FTSE 1 index which saw 3.3% growth and the S&P 5 index which grew by 8.5% During the five years to June 17, the T&M index has grown by 95.1%, compared to 78.3% growth in the S&P index and 32.4% growth in the FTSE index Trading multiple valuations for the T&M index average.7x EBITDA. GDP was estimated to have increased by.3% during Q2 17, a small increase from.2% in Q1 Growth was primarily driven by services, which grew by.5% between Q1 and Q2 Having increased by.5% in Q1, manufacturing decreased by.% during Q2. UK BUSINESS CONFIDENCE OPTIMISM IS HIGH BDO UK OPTIMISM INDEX M&A MULTIPLES CONTINUE STRONG GROWTH M&A MULTIPLES OVER TIME (Europe and US & Canada) Dec-11 Mar- Jun- Sep- Dec- Mar-13 Jun-13 Sep-13 Dec-13 Mar- Jun- Sep- Dec- Mar-15 Jun-15 Sep-15 Dec-15 Mar- Jun- Sep- Dec- Mar-17 Jun-17 Positive Growth 7. Q2 Q3 Q4 Q1 13 Q2 13 Q3 13 Q4 13 Europe Q1 Q2 Q3 Q4 Q1 15 Q2 15 Q3 15 Q4 15 Q1 Q2 United States and Canada Source: S&P Capital IQ Note: the above presents the median EV/EBITDA multiples for transactions across all sectors M&A deal multiples, across all sectors, have grown robustly over the last five years, with Q2 17 delivering median EV/EBITDA multiples of 11.5x in the US and Canada region and 1.4x in Europe Multiples in US and Canada have grown % from 1.x in Q2 to 11.5x in Q2 17 Multiples in Europe have grown 24% from 8.4x in Q2 to 1.4x in Q2 17 Q3 Q4 Q1 17 Q2 17 Source: BDO Business Trends report. Note: Greater than 95 = positive growth The BDO Monthly Trends Indices are polls of polls that pull together the results of all the main UK business surveys. ( The BDO Optimism Index increased to.9 in June, up from.2 in March. Optimism is high implying that UK businesses are expecting a flurry of business activity following the political uncertainty in June, which left many businesses delaying investment plans Consumers will be hopeful that the anticipated increase in activity will filter through to wage growth. BDO s Inflation Index dropped from 15. to.8 in June but inflation remains a key concern for households with consumer price inflation currently outpacing wage growth. 1 The BDO T&M index includes listed T&M companies from across the globe

6 FOR MORE INFORMATION ROGER BUCKLEY M&A Partner SIMON LING M&A Director SUSANNAH PERKINS M&A Senior Manager MATT GOODLIFFE M&A Manager M: +44 () E: roger.buckley@bdo.co.uk M: +44 () E: simon.ling@bdo.co.uk M: +44 ()78 82 E: susannah.perkins@bdo.co.uk M: +44 () E: matthew.goodliffe@bdo.co.uk This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC357, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members' names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. 17 BDO LLP. All rights reserved.