Industrials: a variety of opportunities
We’ve seen a lot of activity and interest in fire safety over the last year and while opportunities in this sector remain, it’s not all about fire. Other areas such as TICC, infrastructure services, renewables and facilities management remain attractive for PE, and there are several other sectors that are active as well.
Here are some areas we’re hearing increasing chatter on…
- Utilities & infrastructure services: these include everything from maintenance and testing to environmental consulting and comprise of a variety of business models that vary in levels of attractiveness to private equity. Ageing infrastructure and increasing regulation is driving demand across residential, commercial and industrial sub-sectors.
- Facilities management (FM): there are several FM businesses coming to market. In a fragmented and low-growth sector, investors need to have confidence in the achievability of above-market returns, whether organic or acquisitive. To find out more, read Brandon’s recent article, Facilities Management: Growth from solid foundations here.
- TICC: interest remains high in this sector due to the compliance-led nature of the services provided, the potential for recurring revenue and the fragmented market offering opportunities for buy-and-build. However, there are few providers of scale to provide a platform for M&A.
- Automotive: there are assets on the market in areas such as bodybuilding, EV manufacturing and specialist components. Supply chain issues appear to have eased in the sector, and short-term growth is expected. However, investors need to be comfortable with long-term prospects within the specific niches served by the target company.
- Niche manufacturing: Armstrong has long been a fan of UK-based, low volume and high value niche manufacturing businesses. We have seen several over the years that have built a sustainable competitive advantage versus lower cost competition. These tend to be businesses supplying mission critical products or components into end markets such as aerospace, transportation, medical or energy.
- Energy: along with renewables, which takes up a lot of investor attention, there are businesses which operate in areas such as gensets and oil & gas products and services seeing sustainable demand. Whilst the focus is on renewables, more traditional sources of energy are a long way from obsolete, even if investors and management teams are likely to have one eye on transitioning away from these areas over the medium/long term.
Please speak to the team about opportunities in Industrials.
Matt McNallyEmail Matt
Brandon MatthewsEmail Brandon
Built Environment: Parking sector motors on
At the beginning of the year, I discussed opportunities in the parking sector: how the reservation market is changing; the pace and impact of ANPR rollout within private off-street car parks; uncertainty around penalty charge price caps; and the importance of electric vehicle charging. Read my article here.
A year on and investor enthusiasm remains. Growth is achievable across the operator, payment facilitator, enforcement and software segments of the market; with the sector continuing to digitise, investors backing management teams that are willing to adapt to new technologies could reap the rewards.
What’s changed and what hasn’t?
The online reservation market is evolving; we’re expecting nationwide rollout of the National Parking Platform by autumn 2024. This means motorists will no longer require a variety of apps to pay for parking, instead having the ability to select from any provider. This will result in increased competitive intensity amongst payment facilitators. In the longer term, additional payment services e.g. EV charging could also be integrated – providers offering multiple services, with the easiest-to-use technology, should eventually win.
We are continuing to see ANPR rollout across private off-street car parks. Operators are benefiting from significant growth in PCN issuance, and currently no downside with respect to potential price caps (see below). However, with motorists increasingly resentful of unfair charges, commercial landlords might be better placed to focus on the data and insight new technologies can provide to maximise the value of their parking assets.
Penalty charge price caps
The parking sector is still waiting to hear the government’s plans for penalty charge price caps, the team looked at three scenarios and their potential impacts on the sector. You can read our findings here.
The electric vehicle market is no longer the darling of the current government as it steps away from its goal of net zero by 2050. However, with charging times decreasing, EV ownership (and the demand for charge points) remains a long-term trend; parking market service providers would be wise to keep this in mind when investing and developing new products.
Speak to a member of the team about opportunities in the parking sector.
Jack HibbsEmail Matt
Industrials: Supporting the acquisition of NSP
Armstrong is pleased to have provided Commercial Due Diligence to Total Integrated Solutions (TIS), backed by Key Capital Partners (Key), in support of the acquisition of Nationwide Specialist Projects (NSP).
Based in Kidderminster, NSP is a market leader in the smoke and ventilation industry, dedicated to enhancing industry standards through innovation and technical advancements. With 13 years of experience, NSP provides an extensive range of next-generation solutions, encompassing smoke ventilation systems and project management services.
The acquisition will allow TIS to expand its current fire services to new and existing customers, whilst strengthening its core capabilities and providing opportunities to enter other high-growth sectors such as high-rise residential safety.
Armstrong carried out a focussed piece of CDD that included in-depth interviews with NSP’s customers and market experts. Our commercial strategy work looked at market trends and assessed possible key verticals for future growth, as well as providing a detailed analysis of the overall macro-economic and sector landscape.
Hannah Kirkup, Investment Manager at Key said, “The acquisition of NSP brings a complementary offering to TIS and we are excited about what the future holds for the group. It was a pleasure to work with the team at Armstrong and the CDD process was seamless.”
Brandon Matthews, Senior Consultant at Armstrong said, “We thoroughly enjoyed working alongside the NSP, Key, and TIS teams, and are thrilled to have helped the transaction. NSP is a high-quality business, with an excellent market opportunity. NSP and TIS have the ability to grow organically, and we look forward to seeing further, successful growth of the business.”
Please get in touch to discuss opportunities in the Industrials sector.
Matt McNallyEmail Matt
Brandon MatthewsEmail Brandon
Human Capital: Recruitment activity above expectations
Investors often consider recruitment as highly cyclical, and so they tend to stay away from the sector during times of macroeconomic uncertainty. However, recent activity levels have bucked this trend. There are several assets coming to market, and we are still seeing plenty of investor interest in well-managed recruitment agencies that have a reputation for quality candidates (temp and perm) in niche sectors.
A good agency is trusted by clients and candidates to make the right match. Their knowledge of the client and sector expertise, often built over many years, creates a degree of loyalty in candidates and stickiness in their customer base. Opportunities to move into adjacent sectors and geographically offers opportunities to create value for investors.
Hot sectors for recruitment currently include:
Sustained shortages of teachers, the need for local supply at short notice and lack of in-house resource all drive schools and colleges towards using recruitment firms. Whilst budget pressures may impact the sector and margins may not be as high as elsewhere, there is a clear roadmap to growth via organic and acquisitive strategies.
Despite the tech sector not being as buoyant as in recent years, the UK still suffers from structural skills shortages and businesses still have significant tech requirements, both BAU and to carry out transformation programmes. The opportunity for recruitment firms in tech to deeply specialise in ‘niches within niches’, which require a high level of subject matter expertise and a strong network, will always create opportunities for differentiation.
The increasing focus on renewable energy across the world will lead to opportunities for specialist recruitment firms both in the UK and abroad. Given the emergence of new technologies in the sector and businesses’ rush to reduce carbon emissions and change business models, there will be plenty of opportunities for recruitment firms to assist businesses in their resourcing requirements.
Macro drivers such as the ageing population, increasing focus on preventative healthcare, and continued public sector budget pressures all point to sustained demand for agencies in the healthcare sector, both private and public. Whilst the NHS does have an in-house recruitment function via its staff bank, this is typically viewed by clients and candidates as not fit for purpose. As such demand for recruiters to fill mission-critical or short notice positions is likely to remain high.
Recent deals we’ve supported
Speak to a member of the team about opportunities in the Human Capital sector.
Matt McNallyEmail Matt
Built Environment: Opportunities for investors to help Britain build better homes
Demand for affordable housing is increasing, supply of that housing has stalled. Technology offers the opportunity to transform the development, construction and occupation of UK housing stock.
Construction has certainly been through a torrid time. However, the macro drivers are positive, and we expect accelerated growth by the end of 2024 as the market enters an ‘expansion phase’.
That said, recovery will be uneven with the development of residential homeownership constrained by higher mortgage rates and availability of development land, especially outside of urban areas. Developers are instead eyeing up the build-to-rent sector with major build-to-rent developments in the early stages of the planning pipeline.
Technology can help. In KPMG’s 2023 Global Construction Survey: Familiar challenges – new approaches; 81% of E&C are now adopting mobile platforms, 43% are using robotic process automation (RPA) and 40% adopting AI – although many are in the early stages.
One technology that is attracting the interest of UK investors is geospatial and location data tools. These enable surveyors / developers / construction workers to enhance decision making, improve project efficiency, and provide valuable insights on site. This improves efficiency and accuracy of data collection, project planning, design, and execution of projects.
Energy efficient homes
I recently published an article on how private equity can help contribute to the UK goal of net zero, smart energy management in homes is part of the solution.
Various businesses working closely with utilities are now reaching size and maturity and offer interesting (and rewarding) opportunities for investors who are also keen to meet ESG ambitions. Service offerings range from energy efficiency and retrofit services to integrated infrastructure offerings for Power, Gas, and Renewable energy. The market is highly fragmented with plenty of space to grow organically or inorganically through an M&A strategy.
We’ve seen a lot of focussed activity in fire safety services over the last year, please read our article here. There is the potential to think more holistically about fire safety within the broader BIM, facilities management and TICC sectors, with their various drivers coming into play such as advances in technology and shifts to preventative maintenance.
Questions for the investor
Here are some key issues and questions facing mid-market PE considering investment in the sector;
- What segments does the underlying tech focus on (e.g. residential, commercial, infrastructure, back-office or on-site)? And what functional elements? Is it pro-cyclical (e.g. with a focus on project management/ERP for new-build), or counter-cyclical (e.g. lifetime building or tenant/revenue management, ongoing certification).
- What size of end-users does the tech focus on, and how developed are the sales channels for these end-users? How does the company benefit from, and overcome the inertia in tech adoption/switching in the sector? Is the sales force tech-led or construction-led?
- What underlying platforms are used for the tech, and how do these tie-in with software and systems currently used by construction firms?
- How strong are relationships with underlying platform providers, what lead generation do these relationships provide, can the target company position itself as a key construction specialist with the platform provider?
- How practical are proposed expansion plans (e.g. by geography, sub-sector, size of end-user, functionality)? How developed is the tech roadmap, and how does this map onto likely future requirements?
Deals we’ve worked on recently
Speak to a member of the team about opportunities in the Built Environment.
Brandon Matthews, Senior ConsultantEmail Brandon
Armstrong wins Commercial Due Diligence Provider of the Year
We’re proud to announce Armstrong has been awarded the Commercial Due Diligence Provider of the Year at the Unquote British Private Equity Awards.
The award recognises the hard work of our talented team which has given our clients the confidence to invest, innovate and grow in challenging markets. In the last year, Armstrong navigated a complex market helping management teams and investors to evaluate performance and identify opportunities through our rigorous commercial due diligence.
Our work is based on our understanding of each company and its market, its value proposition and differentiators, and the commercial opportunity. This year we helped our clients to assess how resilient business plans were to a range of challenges including the energy crisis, inflation and the competitive dynamics of the markets they operate in.
If you would like to find out more about who we are and what we do, please get in touch.
Peter Cookson, Managing PartnerEmail Brandon
Human Capital: Armstrong supports Aliter’s investment in Jumar
Armstrong is pleased to have provided Commercial Due Diligence (CDD) to private equity firm Aliter Capital LLP (Aliter) in support of its investment in Jumar, a tech talent, digital transformation and technology solutions business.
Founded in 2000, with headquarters in Solihull, Jumar has developed a reputation for delivering innovative technology solutions. Jumar’s team of technology experts work with customers across the public and private sectors, providing digital transformation, technology solutions, project outcomes, augmenting in-house resources, and identifying skilled talent to support their customers’ technology and business needs.
The deal is consistent with Aliter’s investment strategy of acquiring and integrating smaller businesses, with ambitions of creating a specialist technology resourcing and solutions group in the UK.
Armstrong carried out a focused piece of CDD to support Aliter’s investment, consisting of detailed interviews with Jumar’s key clients. Interviews focused on answering Aliter’s key questions with respect to the strength of Jumar’s client relationships, its performance and differentiation versus competitors, and the growth potential with existing accounts.
James Davies, Investment Director at Aliter Capital, said “It was great to work with the Armstrong team on this transaction. Their report gave us confidence in the strength of Jumar’s client relationships and the growth potential of the business. We look forward to working with them again in future.”
Please get in touch to discuss opportunities in the Human Capital sector.
Matt McNally, DirectorEmail Matt
Professional Services: Office of the CXO space attracts mid-market investment
The Office of the CXO space sits across business functions, encompassing the Chief Financial Officer (CFO), Chief Human Resources Officer (CHRO), Chief Compliance Officer (CCO), amongst others.
Finance transformation is a key theme – a CFO has a lot to do with limited resources, supporting a broad range of commercial and operational needs. CFOs are expected to develop a finance function that is efficient, effective, future-proof, and interacts smoothly with the wider business; easy to say, difficult to do.
Office of the CFO tech and services
The Office of the CFO technology stack will typically consist of best-of-breed point solutions that supplement core ERP functionality. This group of tools can be used to run, improve and optimise financial reporting and operational processes. These solutions can provide ROI and improved performance as a specific point solution, and, as is increasingly the case, work across functions.
Vendors often take a modular sales approach, allowing businesses to scale up functionality (and therefore cost) based on needs. Finance departments will have a general ledger, Excel, and various separate data feeds. Competition for spend will often be against Excel + plug-ins and manual processes. Deciding which software to select will be dependent on how complex requirements are, with options ranging from “making do” with Excel customisation, to full scale EPM implementation for enterprise businesses.
Implementing a new system can be complex, time consuming, and expensive. External consultants are typically brought in for implementation to best fit the business needs, as well as ongoing customisation and support. This can be the Big Four, or smaller vendor-aligned specialist firms (these will typically be either sector, function, or vendor aligned, or a combination of the three). For these consultants aligning with the ‘right horse to back’ in terms of vendor is crucial, as demand for their services can be driven by demand for software.
A growing market
The Office of the CFO tech and services market is large and growing. With positive underlying demand drivers, there’s plenty to attract the mid-market investor:
- Multiple points of entry: Each vendor operates a different approach to its channel, but there are some common themes. The ecosystem is serviced by a) tech providers, b) implementation consultants, c) tech-enabled service providers, and d) to a lesser extent, MSPs.
- Dynamic market: Adoption of cloud-based accounting software and growth in core ERP and EPM software has caused a fundamental shift in the market towards cloud-based software adoption and best-of-breed solutions.
- New revenue streams: Businesses in the space can service the market with a) software (generating sales margin), b) services, or c) both. There’s an opportunity to cross-sell other services and/ or modules to clients, as well as offering ongoing support services. Developing the channel network is key.
- Sell-on: Software providers can extend their offering with new/ different complementary product and/or service lines to existing and new clients, though becoming a vendor/ function/ sector specialist can be a differentiator.
Do the diligence
Know-how, track record and industry knowledge are critical.
There will be constraints (this may be headcount growth, specialism, track record/ expertise, geographic coverage) that investors need to understand fully. Gaining new geographies or verticals may require new skills and capabilities outside of the business, M&A or acqui-hire could be an attractive and fast way to ‘buy’ capacity.
A deep dive into the sales process and demonstration of ROI (better, faster, cheaper) is essential. Each sale vs. in-house/ incumbent solution will be different due to pre-existing systems, processes, integration and reporting. Engaging the right consultants to understand business needs, with the requisite expertise is essential in minimising ongoing cost and difficulties associated with introducing new software or processes, and maximising utility and ROI.
Speak to a member of the team about opportunities in the Office of the CXO space.
Rupert Cookson, Senior ConsultantEmail Brandon
Travel: Tour operators are attracting investor attention again
Demand for tour operators is ramping up; assets locked in because of Brexit and COVID are coming back to market, and bookings are remarkably strong.
Attractive travel assets
For investors in the travel sector, tour operators have been better protected from inflation and the cost-of-living crisis. Booking activity in 2023 suggests travellers are continuing to choose holidays over other forms of disposable spending, and on the back of years of disruption, they value the reassurance that booking through an operator brings.
Do your diligence
Destinations, reputation and the customer experience will be key, but it’s also important to understand the value drivers for specific businesses.
Here’s what to look for:
- Destination markets and local expertise
Our recent work on Inside Travel Group and other live projects is highlighting the importance of end market destinations. Market research can help quantify demand in these locations, and customer insight will confirm if the business has the local expertise to differentiate against other more generalist providers.
- Get your pricing right
Surveys suggest that consumers are less willing to forgo their holidays and are prepared to sacrifice other non-discretional spend instead. Price increases are tolerated, provided standards do not fall. What is the pricing strategy? Can the sales team clearly articulate it? How well is the business managing the customer experience given the squeeze on resources and staff?
Getting and keeping the right people is still a key concern. Management teams will need to be able to present a clear plan of how they are addressing staff shortages now and in the future. What flexible working arrangements are in place? How is talent rewarded? What are the levels of churn in key roles?
- Be aware of the environmental impact
Holidaymakers are also more environmentally conscious and aware of their ecological footprint than ever before, a trend that is set to continue. Promoting resorts with a sustainable energy focus and the use of carbon credits are on the rise; tour operators would be well advised to embrace these changes. Those businesses that are conscious of their environmental reputation are likely to be more attractive to investors.
Tour operator deals we’ve supported
Please contact a member of the team about opportunities in the travel sector.
Jack Hibbs, Engagement ManagerEmail Brandon