KBS - Testing, Inspection, Certification & Compliance - Market Insight

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MARKET INSIGHT – TICC + ENERGY EFFICIENCY & CARBON REDUCTION + ENVIRONMENTAL COMPLIANCE

WHAT IS THE TESTING, INSPECTION, CERTIFICATION & COMPLIANCE (TICC) SECTOR? The Testing, Inspection, Certification & Compliance (TICC) sector consists of businesses that provide independent verification, auditing and regulatory compliance services across various industries. This includes product testing, environmental and safety inspections, quality assurance, technical assessments and certification services. TICC companies serve sectors such as construction, healthcare, food & beverage, automotive, aerospace, oil & gas and industrial manufacturing.

The demand for TICC services is driven by regulatory requirements, increasing safety and environmental standards, globalisation of supply chains, and the need for risk mitigation.

Organisations rely on third-party testing and certification to ensure compliance with laws, enhance brand reputation, and maintain operational efficiency. Growth in the sector is further supported by technological advancements such as automation, AI-driven inspections and digital compliance platforms.

The environmental compliance and due diligence market is expected to grow from $9.18bn in 2024 to $9.7bn in 2025 at a CAGR of 5.7%.

M&A ACTIVITY CONTINUES TO RISE WITHIN THE TICC INDUSTRY UK companies within the TICC, energy efficiency & carbon reduction and environmental compliance industries are in increasing demand.

Deal activity for UK environmental sustainability-related companies increased by 32% in Q3 2024 compared with the previous quarter’s total of $15.5bn, and rose by 19% in comparison to Q3 2023.

Related deal volume increased by 11% in Q3 2024 versus the previous quarter and was 14% higher than in Q3 2023. The Energy, Utilities and Resources sectors recorded £18.2bn of M&A activity in 2023.

The increases are based on the following factors:

ENERGY TRANSITION:

The energy transition and security of energy supply is a significant part of M&A activity, with total investment in UK cleantech having reached £2.8bn in 2022.

Greenfield and brownfield continue to gain momentum, with capital funding across the renewable sources of wind, solar, hydroelectric and bioenergy. For example, LDC invested significantly into Boston Energy, a technical services provider to the wind energy industry.

Consolidation of complementary providers will accelerate the commercial sustainability and growth of energy transition-focused businesses.

Energy storage is also a sector that is seeing growth and is attractive to private equity firms, as energy security has become increasingly important in the UK and EU. This paves a pathway to respond with demands on the electricity grid, e.g. Gresham House Energy Storage Fund invested in a portfolio of utility-scale operational battery energy storage systems in the UK. ENVIRONMENTAL COMPLIANCE: The environmental compliance and due diligence market is expected to grow from $9.18bn in 2024 to $9.7bn in 2025 at a CAGR of 5.7%. It is expected to reach $12.56bn at a CAGR of 6.7% by 2029. Corporate social responsibility (CSR) advancements in sustainable technology and governmental pressure all contribute to this growth. CROSS-INDUSTRY CONVERGENCE IS DRIVING NEW OPPORTUNITIES: Firms are seeking to synergise across industries to uncover new opportunities. Technological firms have invested into renewables and energy storage for data centres to meet their ESG goals. Conversely, industrial firms are acquiring, and merging with, energy firms to secure reliable power to decarbonise manufacturing. This convergence will fuel innovative partnerships, e.g. German companies formed the Pro-Fusion association to drive fusion energy development.

CURRENT LANDSCAPE Several key trends have shaped the UK M&A market in the TICC sector in recent years. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG):

The stringent regulations imposed by governments worldwide, and the increasing public awareness of environmental concerns, are a significant market trend - with environmental consultancy, certification and compliance services being sought after by both private equity and trade buyers. For example, UK-based health, safety and ESG risk management provider Alcumus acquired Planet Mark, a sustainability certification provider. BUILDINGS HEALTH AND SAFETY: TICC services relating to buildings health and safety is a subsector experiencing substantial growth, with transactions such as Sagard’s acquisition of ACCEO. BRAND IMAGE: Firms have recognised the importance TICC plays in ensuring longevity, maintaining a strong brand image and instilling trust into its customers. Quality testing, inspection and certification build consumer trust and loyalty. Moreover, as firms wish to showcase their ESG, meet regulations and avoid accusations of greenwashing, TICC will play a pivotal role. VARIED REGIONAL LANDSCAPE: Geopolitical instability in the Middle East has created risks for energy security and wholesale markets. The EU is heavily investing in renewables, grid modernisation and energy storage as it aims to minimise dependency on external energy sources and gain energy security. India has set targets to decarbonise energy to 50% and achieve 500GW of fossil-fuel-free generating capacity by 2030. However, in the US, with the election of President Donald Trump, it has been predicted there may be a shift away from environmentally friendly solutions, with investments in natural gas infrastructure and fossil generation assets. Renewable energy is still expected to continue to benefit from long-term support despite short-term uncertainties. COMPLIANCE: Rising rates of air pollution are detrimental to our health. WHO research concluded almost the entire global population (99%) breathes in air that exceeds air quality limits. Public and governmental pressures from growing environmental safety concerns have contributed to the development of the environmental compliance market. Moreover, innovation is driving force for growth, e.g. the Daily Screening System is an AI tool that scans millions of documents daily, identifying ESG-related risks and detecting incidents across industries. Other tools include remote sensing, data management systems and geographic information systems (GIS). For example, RepRisk, a Switzerland-based ESG data science company, launched a Due Diligence Scores solution in 2024 with the aim of offering disaggregated ESG scores, contributing to a focused compliance approach.

WHAT EBITDA MULTIPLES ARE BEING ACHIEVED FOR COMPLETED COMPANY SALE TRANSACTIONS? In the UK and global TICC sector, EBITDA multiples for company sales typically range from 7x to 15x , depending on the company’s niche, accreditation status, customer base and level of recurring revenue. Key valuation trends include:

+ PRODUCT TESTING & QUALITY ASSURANCE FIRMS:

Businesses offering material testing, non-destructive testing (NDT) and laboratory analysis typically trade at 8x-14x multiples, with higher valuations for accredited and specialised labs.

+ ENVIRONMENTAL & SAFETY INSPECTION PROVIDERS:

Companies focused on air quality testing, emissions control and workplace safety audits tend to see 7x-13x multiples, depending on regulatory demand and contract stability. + CERTIFICATION & COMPLIANCE ASSESSMENT FIRMS Businesses providing ISO certifications, food safety audits and industry-specific compliance checks command 8x-15x multiples due to their high-margin, accredi-tation-based business models. + CONSTRUCTION & INFRASTRUCTURE INSPECTION FIRMS: Companies specialising in structural integrity assessments, fire safety inspections and building compliance tend to achieve 7x-12x multiples, with growth driven by regulatory enforcement. + OIL, GAS & INDUSTRIAL TESTING FIRMS: TICC companies serving energy, petrochemical and industrial manufacturing sectors can see 9x-15x multiples due to high regulatory requirements and specialised expertise. + MEDICAL & PHARMACEUTICAL TESTING PROVIDERS: Businesses conducting clinical trials, medical device testing and pharmaceutical compliance assessments achieve 10x-15x multiples, reflecting strong growth in healthcare regulations. CURRENT TRADING MULTIPLES (EV/EBITDA) OF LISTED TICC COMPANIES

15.0x 13.7x

13.2x 9.5x

11.3x 10.6x

12.9x 11.7x

10.8x 9.3x

12.0x 10.9x

12.4x 10.7x

14.2x 12.2x

16.3x 11.5x

8.7x 7.6x

EV/EBITDA LTM

EV/EBITDA NTM

LTM median (12.6x)

NTM median (10.8x)

FACTORS DRIVING HIGHER VALUATIONS AND EBITDA MULTIPLES IN THE TICC SECTOR Several factors influence valuations in the TICC sector, with a strong focus on accreditation, contract stability and industry specialisation:

1. REGULATORY DEMAND AND INDUSTRY ACCREDITATION

• Companies holding internationally recognised accreditations (e.g. UKAS, ISO 17025, FDA, BSI, CE marking) are valued higher due to the barriers to entry and trusted market positioning.

2. RECURRING REVENUE AND LONG-TERM CONTRACTS

• Firms with repeat testing, ongoing compliance monitoring and subscription-based certification services command premium valuations due to predictable revenue streams. 3. NICHE EXPERTISE AND HIGHLY SPECIALISED SERVICES • Businesses operating in highly regulated industries (e.g. aerospace, pharmaceuticals, environmental safety) attract higher multiples due to specialised technical knowledge and high barriers to entry. 4. GEOGRAPHIC REACH AND GLOBAL EXPANSION POTENTIAL • Companies with international operations or the ability to expand into emerging markets benefit from increased investor interest due to global compliance needs. 5. TECHNOLOGICAL INNOVATION AND DIGITALISATION • Firms integrating AI-driven inspections, IoT-enabled monitoring, blockchain certification and automated compliance software attract premium valuations due to efficiency and scalability. 6. PRIVATE EQUITY AND CONSOLIDATION ACTIVITY • The TICC sector is undergoing consolidation, with private equity firms and large multinational players acquiring smaller regional specialists to expand service offerings and geographic presence. 7. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) TRENDS • Businesses providing sustainability audits, carbon footprint assessments and green building certifications are seeing rising demand and higher multiples as ESG regulations tighten globally.

EXHIBIT 1 - COAL AND FUELS HAVE SEEN A DISCOUNT, AND RENEWABLES A PREMIUM

Historical EV/EBITDA, sector ratio vs. S&P 500

Commodity and agricultural chemicals

Renewable power generation

Coal and fuels

Integrated oil and gas

5.6

5.3 5.3

4.0

2.0

3.7

1.1

0.2 0.3

-0.6

-2.0

-2.4

-3.2

-7.2

-4.3

-6.9

-8.1

-7.0

2012 2014 2016 2018 2020

Source: BCG

MOTIVATIONS OF TRADE ACQUIRERS AND CONSOLIDATORS IN THE TICC SECTOR In a recent survey, 46% of energy leaders reported they are planning for acquisition or divestment in the next 12-18 months, to help achieve strategic goals and accelerate investment. There is also desire for R&D in new areas aligned to decarbonisation, including carbon capture and renewables, or to refocus portfolios on core assets. Moreover, firms committed to sustainability practices, e.g. decarbonisation and circularity, have demonstrated higher shareholder returns. Firms are looking to expand their core capabilities and expand in other markets, and M&A allows for quick inorganic growth through acquisitions of firms that already specialise in a certain domain, e.g. ESG firms are able to gain market share, position themselves as leaders in the space and meet the increased demand for regulatory compliance. Furthermore, firms that have specialised software or technology are in high demand. To navigate the complexities in environmental reporting and analyse large datasets, AI and the IoT is utilised widely. However, firms with platforms or in-house software add to the value and expertise of potential acquirers - for example, the acquisition of P2 Energy Solutions by IFS.

FACTORS DRIVING GROWTH IN THE TICC SECTOR STRINGENT REGULATIONS:

Regulatory pressures are driving growth in the UK and worldwide. Consumers have become increasingly interested in product safety, environmental protection and sustainability practices. Moreover, governmental initiatives and grants propel this sector. Increased regulations are omnipresent across all industries, encouraging firms to invest in TICC to comply with evolving standards. TICC services are crucial in verifying compliance and industry assurance SUSTAINABILITY FOCUS: Sustainability and environmental impacts play a pivotal role in the TICC industry. These services evaluate and certify the validity and scrutinise industry practice. Growth is propelled by the emphasis on safety, quality and environmental effects. The ESG investment market is predicted to reach $130bn by 2032. Technological advancements are prominent in this sector, for example autonomous drones with optical gas-imaging payloads have been used to detect leaks in the USA’s Permian Basin. Further improvements will continue to increase efficiency and accuracy within the industry. There are growth opportunities to incorporate blockchain technology into the certification process. Data will have increased security and protection against hacking, forgery and unauthorised access. However, challenges may arise as there is a need for constant research and development. INFRASTRUCTURE DEVELOPMENT It is crucial to consider the UK’s development and infrastructure projects with regards to sustainability and environmental compliance. In 2024, the building of these projects was accountable for 25% of the UK’s greenhouse gas emissions. Local authorities, e.g. Greater London Authority, have set embodied carbon targets. London’s carbon emissions from buildings are estimated to be nearly 70%, which impact policy-making, thus environmental consulting firms and TICC are expected to see growth with a focus on environmental impact assessment (EIAs), land use planning and sustainability evaluations for these projects.

Greater London Authority, have set embodied carbon targets. London’s carbon emissions from buildings are estimated to be nearly 70%

WHAT TYPES OF TICC COMPANIES ARE STRATEGIC ACQUIRERS PURSUING?

A consolidation trend is growing in the TICC sector, with smaller niche players being absorbed by the larger ones. Due to the competition for deals among many buyers, valuations are currently particularly attractive to the sellers. Moreover, due to the fragmented nature of the TICC market, many strategic buyers are looking to acquire.

KEY ACQUIRERS AND INVESTORS Key acquirers and investors driving mergers and acquisitions in the TICC sector include the following companies:

TRANSACTION MULTIPLES DEVELOPMENT - EBITDA

13.5x

10.5x

9.1x

7.7x

Targets with EBITDA under ¤10m

2010 - 2016 2016 - 2023

Source: Internal deal database from 2010 to 2023

In 2023, approximately 75% of all global deals in the TICC sector involved private equity on the buy-side.

GLOBAL INVESTMENT IN CLEAN ENERGY AND FOSSIL FUELS, 2015-2024

2000

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

1600

1200

800

400

Fossil Fuels

Clean Energy

Source: International Energy Agency

There is now almost twice as much investment into clean energy as into fossil fuels.

SECTOR DEAL ACTIVITY

IASME CONSORTIUM ACQUIRED BY PHENNA GROUP

KBS DEAL

Phenna Group partners with selected niche, independent TICC companies that serve a variety of sectors, and made a multi-million pound investment into IASME, which helps businesses improve their cyber security, risk management and governance through an effective and accessible range of certification schemes.

Dr Emma Philpott, CEO of IASME, commented: “The shareholders were very happy with the overall deal KBS delivered and we could not recommend them highly enough.”

ECAS, headquartered in Birmingham and an industry leader in environmental compliance, with an award-winning programme that ensures food service establishments dispose of fats, oils and grease responsibly and sustainably, was another acquisition by Phenna. ENVIRONMENTAL COMPLIANCE AND SERVICES (ECAS) ACQUIRED BY PHENNA GROUP

MTL PROJECTS ACQUIRED BY NORMEC

KBS DEAL

Founded as Mark Thompson Lifesciences (MTL), the County Durham-based company was sold to TICC leader Normec. Mark Thompson posted an online review in which he wrote that KBS “were professional and value-adding from the beginning, good to deal with and highly responsive throughout – would highly recommend”.

BASEC, an independent accredited certification body for the electrical cable industry worldwide, was acquired by Kiwa UK, a global supplier of TICC services in a wide variety of international markets. BASEC GROUP ACQUIRED BY KIWA

VISION SURVEY ACQUIRED BY CELNOR GROUP

KBS DEAL

Vision Survey, which provides a range of compliance services including utility scanning, GPR (ground penetrating radar) and permit-to-dig applications for civil engineers and constructors, was sold to TICC specialist Celnor Group, a provider of critical data, consulting and insight for compliance, safety and sustainability.

UKPNS secured a 70-asset solar, wind and hydro portfolio spread across the North West of England in a deal valued at just under £91m. UU SOLAR ACQUIRED BY UK POWER NETWORKS SERVICES (UKPNS)

TESTCONSULT ACQUIRED BY JAMES FISHER AND SONS

KBS DEAL

Testconsult, a market leader in providing structural materials testing, structural investigation, foundation testing and instrumentation and monitoring services, was sold for a value negotiated by KBS that was 80% higher than the initial offer and an 11x multiple of operating profits.

TEC, headquartered in Corby with a northern office in Widnes, joined PTSG to provide its first legionella control and management service offering. TOTAL ENVIRONMENTAL COMPLIANCE (TEC) ACQUIRED BY PREMIER TECHNICAL SERVICES GROUP (PTSG)

HCD GROUP ACQUIRED BY BUREAU VERITAS

KBS DEAL

Construction compliance company HCD Group, a UK leader in Building Control Approved Inspector services, was sold to Paris-based Bureau Veritas, a world leader in laboratory testing, inspection and certification services.

GT CERTIFICATION ACQUIRED BY CONSTRUCTION TESTING SOLUTIONS (CTS)

KBS DEAL

GT Certification offers comprehensive measurement, calibration and testing services throughout the UK and internationally, and was acquired by Leicester-based CTS, which supports all sectors of the construction inspection and investigation market.

SILKSTONE ENVIRONMENTAL ACQUIRED BY CONSTRUCTION TESTING SOLUTIONS (CTS)

KBS DEAL

Another acquisition by CTS was Silkstone, a multidisciplined consultancy specialising in several sectors including mineral, waste management, site investigation and surveying.

STRATEGIC INTERESTS OF PRIVATE EQUITY AND INVESTMENT BUYERS IN THE TICC SECTOR Private equity investors are particularly interested in the TICC sector because it offers opportunities for ‘buy-and-build’ strategies. Furthermore, these businesses are able to cross-sell more TICC services to the same customer base or optimise costs.

MOUNTHLY NUMBER OF DEALS IN THE TICC SECTOR SPLIT BY BUYER TYPE - 2024

14.0%

28.8%

26 5

23 9 2

22 5

7 2

1 11

57.2%

Mar

Dec

Jan

Aug

Feb

Apr

May

Jun

Sep

Oct

Jul

Nov

2024

PE platform

Strategic

PE-backed add-on

Average of 14 deals per month since 2020

Source: Oaklins

PRIVATE EQUITY CONNECTIONS PE investments into TICC companies have become a highly significant part of the industry.

We maintain active relationships with many leading private equity houses that either hold or are actively seeking acquisitions in the TICC sector, and which also receive funds from institutional investors.

Net zero businesses have gained £23bn in funding and £1.1bn in grants.

PRIVATE EQUITY DEAL ACTIVITY PE firms are actively involved in the TICC and energy efficiency market and are expected to continue seeking opportunities within the space, with recent deals including:

IK PARTNERS INVESTMENT INTO HSL COMPLIANCE

European private equity firm IK Partners invested in Herefordshire-based HSL, a leading provider of environmental compliance services in the UK, alongside the management team and existing investor LDC who both reinvested as part of the transaction.

INFLEXION INVESTMENT INTO CELNOR GROUP

Inflexion, a London-based PE firm, made a majority investment into Celnor. Previously, Inflexion had built up industry-leading expertise in consolidating the TICC market through a number of successful investments in the sector including Phenna Group, Alcumus, BES Group and Cawood Scientific.

LDC INVESTMENT INTO POWER SAVING SOLUTIONS

LDC, the private equity investor which is part of Lloyds Banking Group, made a significant investment in Mansfield-based battery power specialist Power Saving Solutions to support its organic growth strategy.

BGF INVESTMENT INTO SKEWB

Warwick-based Skewb, a leading provider of digital transformation services to the energy and water sectors, received a significant £6.25m investment from BGF to support its continued growth as it sought to expand its suite of products and its consultancy and transformation services.

BESTPORT INVESTMENT INTO ENERGY EFFICIENT SOLUTIONS GROUP

Bestport invested in fast-growing Windsor-based LED and solar consultancy business Energy Efficient Solutions, which designs, supplies and installs LED and solar solutions for the healthcare, local authority, education and commercial sectors.

MARKET INSIGHT The global TICC market was valued at $225.1bn in 2022, exhibiting a compound annual growth rate (CAGR) of 3.2% from 2023 to 2030. Key market players include SGS SA (Switzerland), Bureau Veritas (France) and Intertek Group Plc (UK). The energy efficiency services market size in the UK is expected to grow at a CAGR of 7.7% between 2024 and 2029, while the environmental compliance market is forecast to be $3.26bn by 2032, exhibiting a growth rate (CAGR) of 5.50% from 2024-2032. The industrial & environmental services sector’s M&A activity was strong in 2024 with 137 deals announced or completed. This can be attributed to increased demand for infrastructure, environmental clean-up and sustainable waste management solutions. INTERNATIONAL COMPLIANCE Firms are acquiring companies worldwide to increase their global reach and meet country/regional specific regulations. For example, ALS completed an acquisition of Wessling Group, an independent environmental, pharmaceutical and food testing group with a strong presence across 26 locations in Germany, France, Switzerland and Romania. NET ZERO The UK is committed to achieving net zero. This sector is growing at a rate of three times the UK economy, having grown 10% in 2024. Scotland’s NetZero economy has grown 21.3% since 2022. Around £84bn has been generated in gross value added, while supporting 951,400 jobs in the UK. Net zero businesses have gained £23bn in funding and £1.1bn in grants. FIGURE 5: Cumulative third-party investment funding into net zero businesses per year since 2019

£25,000

£2,862

£20,000

£6,368

£15,000

£5,792

£10,000

£5,000

£5,852

£0 Investment Funding (£m) 2019

£1,142

2020

2021

2022

2023

2024

Total Previous Investment (Since 2019)

New Investment

Source: CBI Economics

Around £84bn has been generated in gross value added, while supporting 951,400 jobs in the UK.

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