The constant pressure to improve in all aspects of business has led to a growth in the testing, control and measurement industry, making it an attractive opportunity for investors
Words by Claire Oldfield
Identifying a new growth sector gives venture capitalists an entirely new challenge. August Equity expects the testing, control and measurement industry – part of the Industrial Products & Services sector – to do just that for them. Although it is allied to manufacturing, the testing, control and measurement sector also touches other industries. “The growth of the market has been driven around the concept of the safety and efficiency of manufacturing, and the increasing compliance and complexity in the manufacturing process,” explains Phil McCreanor, who heads up Livingstone Partners’ industrial sector. He has been involved in this area for some time and says the real issue for investors is narrowing the focus because the opportunity is so vast.
There is a continued drive to provide technological innovation for companies to increase the traceability, safety, efficiency and capability of products and processes. Firms offering services to increase performance in any of these areas are potentially interesting investments. A couple of key factors are driving growth in the sector. First, UK manufacturing has to be very lean in order to be cost effective, which means that many of the processes are now automated. Shutting down an entire production line if there is a problem is costly, and many manufacturers are now relying on inline testing technology to ensure problems don’t arise. The second thing driving the sector is the rise in regulation and red tape. “There is increased regulation surrounding manufacturing – including environmental legislation, UK and European legislation, and even legislation around technical standards,” says McCreanor.
Private equity firms have an eye on the sector because there is a lot of competing technology. “Of particular interest to us are companies with proven technologies and competitive advantages arising from their intellectual property know-how, product design services and brands,” says August Equity partner Sam Watkinson. August Equity has everything to play for. The industry is still reasonably fragmented, but there are some larger companies in the sector, which means the potential exit from investments is fairly well defined. McCreanor says he expects the market to consolidate over the next few years. At the same time, he says: “The regulation around all areas will increase and the standards will be getting tighter.” All this means only one thing: the sector is ripe for growth.
Livingstone Partners’ Phil McCreanor says often the first three key things to look for in a manufacturing company to assess if it is likely to sustain medium-term profitability are:
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