Financial institutions of all sizes often require external compliance advice and support. The compliance advisory market is significant and ranges from the Big Four consulting practices through to freelance contractors. The boutique end of the compliance advisory market typically serves smaller to mid-sized clients. It is specialised, fragmented, growing, and continues to attract PE attention.  

Keeping up with compliance  

New entrant and mid-sized financial institutions can struggle to manage regulatory compliance with available in-house resources. They often look externally to supplement their inhouse compliance teams due to a lack of capacity, a lack of expertise, cost, and general concerns about the risk of regulatory enforcement down the line.  
 
The relationship with a compliance consultancy frequently starts with support on the FCA authorisation process and evolves into long-term advisory support either through retainer agreements or bespoke ad-hoc projects. This is an attractive business model for investors with a sizable portion of recurring revenue and a transparent revenue base. 

Trusted advisors 

Compliance advisory firms provide expertise, efficiency, and usually possess strong relationships with regulators. Their clients trust them to help meet rigorous regulator expectations. Once established, these client relationships are sticky and offer opportunities to sell on further services. 

A core part of the organic growth strategy is growing the client book through referral networks. Referrals come from adjacent professional services providers who also serve small to mid-sized financial institutions (e.g. lawyers, accountants).  

Typical service lines of compliance advisory firms include: 

• FCA authorisation support 
• Compliance advisory (via retainers or bespoke project work) 
• Outsourced compliance support (e.g. audits, file reviews, reporting) 
• Regulatory M&A due diligence 
• Compliance training 
• Compliance staffing solutions 
• Compliance software products 

What investors are asking 

UK financial services compliance advisory services is a highly fragmented market. The Association of Professional Compliance Consultants (APCC) have over 150 members ranging from generalists to niche specialists operating in a specific regulatory area or sector. We have seen potential platform assets coming to the market in the last two years and expect to see more in 2024.  

A challenge for investors is how to segment the market meaningfully. There are many ways to divide up the market and it is difficult to benchmark a consultancy’s capabilities against its nearest competitors. In response we have created a framework to help investors and management teams segment this complex market and pinpoint where they can create value. 

Here are some common questions we have helped PE and management teams to answer: 

• What is the size of the addressable market opportunity given narrow specialisms across FS verticals, regulatory areas, and service lines? 
• What are forthcoming regulations likely to be, and how can a provider best position themselves to take advantage? 
• What truly differentiates providers from each other? How can a provider protect against losing its own clients to its close competitors? 
• What is the end-to-end client lifecycle? At what stage is the provider at risk of being replaced with the client’s in-house compliance function? What are the implications of this on the business plan?   
• How does the referral network actually work? How successful is it in generating new business? How can it be further developed to win a greater share of referrals? 
• What cross-sell/up-sell opportunities exist with the current client base?
• Is buy-and-build a viable strategy in the market, and if so, what is the optimal strategy? How do M&A targets fit into an accelerated (inorganic) business plan? 
• How is technology being used internally to improve margins? 

Please get in touch with a member of the team if you would like to discuss opportunities in the FS compliance advisory market. 

Solomon Ishack

[email protected]
+44 7943 036 633

Email Solomon

The built environment is often equated with construction. It is so much more. Smart buildings and technology are transforming our environment, and their adoption is driven by regulation and climate change. There are so many components that go into smart buildings, and these continue to attract mid-market investor attention.

One example is installing a lift in a smart building: you’ll need engineers for the installation work; consultants to advise on how many lifts, footfall, their load and capacity; software to run and monitor the lifts; specialists on energy consumption; and facilities management to monitor and maintain them. A question for those providers is how deep do they specialise and what services can be joined up to offer a comprehensive solution to their customers?

A large underlying market…

In recent years, assets operating in the built environment have been out of favour because of the preconception that performance is linked to construction cycles. This does not take into consideration that UK infrastructure is ageing and there’s a huge amount of refurbishment going on. What better time to convert these buildings into smarter, greener buildings? And there’s a large installed base. Even if landlords are not planning to do anything smart with a building; buildings need to be maintained, monitored, and meet regulations.

… connected to our infrastructure

It is also important to consider how buildings are integrated into their surrounding environment and technology can support more efficient and high-quality service connectivity. This could be from the water pipes to the need to install EV charging stations. We see opportunities for companies that can help landlords monitor and manage the health of their assets from the outside in.

Here are three areas where mid-market in PE is successfully creating value in smart buildings:

Geospatial: There has been a significant increase in uptake of geospatial technology in the last six years. It is now considered a critical element in projects across sectors and is used at scale in areas ranging from marketing of real estate to EHS (Environmental, Health & Safety). Adoption and opportunity vary by sector with significant potential for growth in the slower adoption sectors like construction and engineering.  Read our recent article about what is driving growth here.

TICC: Preventative maintenance and condition monitoring continues to attract investors to TICC. There are lots of small TICC specialists, read our article here on how to find the value in them.

Facilities Management: There has been recent activity in the FM sector and investors will need to understand how their assets fit into the broader build environment trends. Successful companies will need to take the lead in making buildings greener and more efficient. Read our article on the opportunities (and tough decisions) facing facilities management providers here.

Please get in touch with a member of the team if you would like to discuss opportunities in industrials and the built environment. 

Brandon Matthews

[email protected]
+44 7771 401 723

Email Solomon

Geospatial technology, technology that collects and / or processes data associated with location, is continuing to attract mid-market investor attention with assets coming onto the market in 2024.  

There has been a significant increase in uptake of geospatial technology in the last six years. It is now considered a critical element in projects across sectors and is used at scale in areas ranging from marketing of real estate to EHS (Environmental, Health & Safety). Adoption and opportunity vary by sector with significant potential for growth in the slower adoption sectors like construction and engineering.  

What is driving the growth? 

Infrastructure: The UK government plans for significant infrastructure investment in the long-term will drive demand for geospatial information. Government often do not have in-house resource or expertise to implement complex infrastructure projects and will rely on specialists and consultants to advise and implement projects.  

Technology: Increased Digital Experience (DX) activity has driven adoption of geospatial technology across many sectors. Demand will continue to increase as ROI and efficiencies are more widely understood across the project lifecycle. 

Environmental and resources management: Key stakeholders have an increased focus on environmental impacts at every stage of a project lifecycle. Buildings are being designed and reconfigured to be more sustainable, driving the usage of digital twin and geospatial data. 

Construction: The construction market suffered during COVID but is entering an expansion phase in the next two to three years. This will lead to growth in the use of geospatial data which is essential at every stage of a construction project lifecycle. Read our recent article – Opportunities for investors to help Britain build better homes here.

Adoption: As geospatial technology advances, the adoption curve shifts up, creating long-term growth potential including increasing the types of usage for early adopters. 

What investors are asking 

It is worth noting that while the application of geospatial tech continues to expand, it is primarily used in infrastructure and construction projects. While the macro-construction environment remains gloomy, the relatively low penetration of geospatial services means a small increase in demand quickly translates to growth. Additionally, we’re seeing usage expand beyond construction and industrial projects into service led property management and environmental services. It is important to get a robust understanding of the market and opportunities for growth.  

Here are some questions we’ve helped PE and management teams answer recently: 

• Which services offer the most attractive recurring revenue opportunities? 
• Which segment of the value chain is most attractive to operate in? 
• What are the competitive advantages of operating as a specialist geospatial service provider versus a large generalist? 
• How can we overcome the talent shortages in the industry? 
• What does the M&A opportunity landscape look like in the sector?  

Get in touch with a member of the team about opportunities in the Built Environment sector.  

Brandon Matthews

[email protected]
+44 7771 401 723

Email Solomon

We expect investment in the travel sector to ramp up in 2024. Consumers continue to prioritise spend on holidays and IATA forecasts air passenger volumes to return to pre-pandemic levels this year. Given the number of assets locked in because of Brexit and Covid, we anticipate a significant number of mid-market transactions in the next twelve months. 

Packaged holiday operators are attracting investor attention as they offer cautious holiday makers reassurance around costs and contingency plans in case of disruption. Assets coming to the market that specialise in increasingly attractive destinations (for example Italy, Japan, Thailand) are well positioned for growth (and many other destination markets are resilient). 

However, accelerating growth can be tricky, and investors will need to carefully quantify potential share gains from investing in digital marketing (enhanced SEO, targeted behavioural advertising, influencer marketing) and discounts / loyalty schemes to maximise new and repeat bookings.  

Close attention should also be paid to the traditional differentiators for these assets – customer service (friendly and knowledgeable staff, communication, organisation, pro-active etc.) and value for money (note not necessarily cheap). These can be overlooked as operators scale, and marketing them effectively is key to continued success. 

Tour operators deals we’ve supported

Speak to the team about opportunities in the travel sector.

Jack Hibbs

[email protected]
+44 7883 296 346

Email Solomon

Armstrong supports investors across a range of professional services deals including consultancies, accountancy and legal services. 

In the legal services sector, we’ve worked on deals in high street legal, flexible law resource and tech-enabled law firm specialist areas like intellectual property (IP) services. 

IP Services 

Last year we published an article on an area where we are continuing to see attractive and scalable M&A opportunities to build tech-enabled IP services, please read our article here.

Large law firms have scale, experience and capacity. However, smaller IP specialists will continue to differentiate where their senior staff build close working relationships with clients. This is based on their technical and legal expertise and understanding of their clients’ businesses. For investors, it’s knowing the key commercial questions to ask.  

High street legal 

There are several acquisitive models for traditional / corporate legal services firms, from vertical integrators (e.g. O’Neill), to dispersed firms akin to barrister’s chambers (e.g. Keystone, Setfords), corporate consolidators (e.g. Metamorph) and traditional acquisition / licencing (e.g. Gateley, Knights Plc, Taylor Rose). Each model has its merits, but execution of the strategy sets the best performers out from the rest. 

The high street legal market remains highly fragmented, successful buy and build examples have adhered to clear criteria when assessing targets, while others have seen difficulties when pursuing size alone. Further consolidation is expected in the space due to positive market tailwinds and challenges for small firms (often <5 headcount) scaling without external support. There will be plenty of opportunities for investors to benefit from this, but selecting the right targets is key.

 Legal tech 

Technology adoption is changing the structure of the legal profession, and its market evolution is presenting attractive and scalable M&A opportunities across the value chain, from full-service tech-enabled law firms right through to pureplay software vendors. We published an article Technology Adoption in the Legal Sector with Clearwater on legal services with a useful framework, which illustrates the potential entry-points for mid-market private equity and trade buyers to access a market going through rapid change.  

Speak to a member of the team about opportunities in the legal sector.  

Simon Hemsley

[email protected]
+44 7957 340 534

Email Simon

Rupert Cookson

[email protected]
+44 7983 110 150

Email Rupert

Jack Hibbs

[email protected]
+44 7883 296 346

Email Solomon

Our sector teams share their sectors to watch in 2024. These are intended to help trigger investment ideas and discussion. If you would like to discuss opportunities in them, please get in touch.   

Technology: Mike Callow & Ifan Dafydd 

We’re doing lots more work in software than usual. Much of this is vertical specific, helping customers in industries such as construction, travel, financial services and the NHS to ‘digitally transform’. These tend to be (relatively) lower growth, but profitable vendors – attractive to investors in the ‘new normal’ climate. 

There is an ongoing opportunity to displace manual and in-house workarounds, as well as legacy providers. These segments have specialised, complex needs. Much of the work is in understanding end market size and dynamics, is there enough to go for? Do we go deeper (adding functionality), or diversify (to another vertical), or go international? 

We’re seeing developing requirements around digital twin, risk, and compliance driving spend in ‘hard’ industries. We expect to see opportunities targeting specific buyer personas (especially the CFO) and in data-heavy areas such as digital forensics and investigations. 

Deal flow is still subdued in digital transformation and software engineering – only the best performing assets are trading. Across the market we’ve seen an IT budget squeeze and deferral of non-essential spend – when will it come back and how quickly? How long will the DX providers wait to come back to market? There is a continued bright spot around data, especially when it is taking customers on the journey to AI. 

Counterintuitively, squeezed budgets are also being reallocated to core enterprise software, catching up with years of underinvestment through COVID. The market is facing big changes in the major channel ecosystems (e.g. S/4 HANA replacement cycle and growth of OCI), furthermore we are seeing lots of opportunities with distinctive service offerings (e.g. buy-side advisory) or addressing high growth niche products. We also expect more deal flow in up-and-coming vendor ecosystems, especially at enterprise level. 

There is continued consolidation in MSP world. Overall market growth is relatively low, but it is a massive multi £bn opportunity that top quartile players continue to gain share of. Net-new growth has been hard to come by as there is less switching during a downturn, but well converged MSPs are in a good position to cross-sell. There are still more platform opportunities than you think… especially as underlying tech continues to evolve, and new specialisms emerge. 

Read Ifan’s recent article The future of ISV channel partnerships.

Human Capital: Simon Hemsley & Matt McNally 

Technology remains the hottest recruitment sector from a PE perspective, due to structural skills shortages, an expected rebound in demand, and the ability of tech recruiters to deeply specialise and carve out a niche in high-growth segments of the broader market.  

The HTD (hire, train, deploy) model is evolving further towards providing ‘blended squads’ to deliver specific projects (possibly alongside consultancy), rather than graduates carrying out BAU work. 

We see tech staffing solutions which augment, simplify or streamline the recruitment, onboarding or management processes continue to develop, but without significantly altering the fundamental nature of recruitment as a ‘people-first’ industry. 

Read Matt’s article Recruitment activity above expectations.

Professional Services: Simon Hemsley & Rupert Cookson 

Professional Services remains an attractive sector for many investors. We’ve seen continued interest in legal services, sustainability consultancies, and consultancies servicing the ‘Office of the CXO’. The key is having a clearly defined GTM strategy and value proposition. Understanding how businesses can hire the required talent to meet headcount growth will remain one of the key topics of diligence in 2024. 

Read Rupert’s article Office of the CSO space attracts mid-market investment.

Financial Services: Simon Hemsley & Solomon Ishack 

Financial services has been quieter in 2023 after a very busy period from 2020-2022, as the macro environment has slowed project activity and higher interest rates have dampened demand in wealth management. There continues to be interesting opportunities in specialist FS technology and consulting businesses, for example in regulatory compliance and monitoring. Investor demand for high-quality FS assets remains strong.

Business Services: Jack Hibbs & Peter Cookson

We expect many business services investment opportunities in 2024 with continued interest in sustainability, urban mobility, and language service providers. 

Sustainability covers a broad range of services, and an even larger number of subsectors, including opportunities across consulting and civils. The fragmented landscape is attractive for investors pursuing a buy-and-build strategy, and ever-increasing public awareness of environmental issues means markets are growing at pace. Many businesses differentiate through highly sought-after niche specialism that larger generalists cannot deliver. Whilst this gives a sustainable right to win, market headroom can be limited – therefore execution of TAM expansion/M&A is often critical for success. Read Jack’s article Attracting the attention of private equity.

Digitisation is transforming urban mobility. Investor interest is abundant across the parking operator, payment facilitator, and software segments of the market. Read Jack’s article Parking sector motors on.

Language services encompasses translation, interpreting, and other less well-known segments such as localisation and transcreation. Investor interest stems from continued market growth, a large and underutilised pool of linguists/interpreters, and a highly fragmented landscape. Whist AI is often seen as a threat from the outside, most providers are well protected and, if harnessed effectively, can benefit from technological advancement in the space. Read Jack’s article Investment opportunities in a highly fragmented market.

Industrials: Matt McNally 

There is continued interest in the broadly defined ‘compliance services’ sector – Infra services, FM, fire safety, TICC – where increasing regulatory stringency, greater focus from customers, and a large backlog of work in certain sectors is driving strong performance businesses and interest from PE. 

We are seeing more focus on product rather than service-led businesses due to the potential for product businesses to have or develop a genuine and compelling USP. PE appetite to invest in circular economy, renewables and ‘net zero’ businesses continues, as does the relative lack of compelling opportunities.  

We also see opportunities in Industrial technology and automation – sensors, predictive maintenance, asset monitoring and management – both to augment and differentiate industrial services businesses, and as solutions in their own right. 

Read Matt & Brandon’s article Industrials: a variety of opportunities.

Travel: Jack Hibbs 

Investment in the travel sector is expected to ramp up in 2024. Bookings are surprisingly strong despite difficult macroeconomic conditions; consumers appear to be prioritising spend on holidays and IATA forecasts air passenger volumes to return to pre-pandemic levels in 2024. Given the sustainability of demand, and the number of assets locked in because of Brexit and Covid, we anticipate a large number of mid-market transactions in the next twelve months. 

Read Jack’s article Travel tour operators attracting investor attention again.

Build Environment: Peter Cookson & Brandon Matthews 

We expect accelerated growth in the construction sector by the end of 2025 as the market enters an ‘expansion phase’. However, 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.    

Read Brandon’s recent article Opportunities for investors to help Britain build better homes.

ISV channel partners extend the reach and effectiveness of Independent Software Vendors (ISVs) in marketing, selling, implementing and supporting their products; enabling them to scale more rapidly while focusing on their core competencies in software development. The relationship is symbiotic, and the channel partners (albeit harder to scale) capture much of the value in the ecosystem – channel revenue can be several times greater than the vendor’s software revenue.

Traditionally, most PE ISV channel deals have been rooted in the major enterprise software vendor ecosystems such as SAP, Oracle, and Microsoft. These are large, well-established markets which have long-standing partner ecosystems.  Generalist channel partners are well fished, but there are plenty of opportunities for those with a distinctive offering – for example those with a specialisation in a niche product, or with vertical IP. 

We are increasingly seeing ISV channel partner opportunities in less mature channels outside of these ‘major’ ecosystems. These include ServiceNOW, Workday, Hubspot, Salesforce, and Splunk as well as more niche and high-growth ecosystems. 

When triaging opportunities within the ISV channel partnerships, there are a few key common considerations: 

Vendor Attractiveness 

• Is the vendor / product a good horse to back? 
• Is it a large growing market, and/or is there a route to taking share of channel? 
• Is it complex and/or mission critical? 
• Is there good professional services attach rate? 
• What is the revenue profile?  Lumpiness of projects concentration?  Are there opportunities for on-sell, continuous improvement, own IP licensing, and managed services? 

Vendor Relationship 

• Is the vendor channel friendly (reseller model, channel support, no direct sales)? 
• Is there a strong, mutually beneficial relationship between the target and the vendor? 
• What go to market support is available from the vendor (leads, co-marketing, co-selling)? 
• Can the target generate its own demand with a standalone sales & marketing function? 
• Does the target have visibility of vendor(s)’s roadmap and commercial strategy? 

Talent 

• Does the target play in complex and growing but supply constrained markets? 
• Where will the talent come from? Where does it hire from?  Can it grow its own talent? 
• Are there specific roles which will be pinch points? 
• Is there a way to increase our talent pool using near/offshore? 
• How reliant is the business on contractors?  
• Any risk of poaching from clients / SIs? 

IP 

• How strong is the know-how and expertise (technical, vertical)? (Good) 
• Does the business have any accelerators to speed delivery? (Better) 
• Can the IP be productised + monetised? (Best) 

Exit Routes 

• Enterprise focus client base – potentially opens up GSIs who can pay a significant premium in talent constrained markets 
• SME focus client base – less clear + case by case. MSP/DX consolidators are often of interest 

As well as these common considerations, different types of ISVs require distinct strategies and have different diligence questions. If you are considering investing in this sector, please contact a member of the Technology team who are happy to discuss specific opportunities and considerations.  

Selected Armstrong SAP, Oracle and Microsoft Credentials

Selected Armstrong credentials in niche ecosystems….

…and we have worked on companies with some degree of ISV channel partner activity in many other vendor ecosystems

IT Services

Mike Callow

[email protected]
+44 7894 594 500

Email Rupert

Ifan Dafydd

[email protected]
+44 7792 158 738

Email Solomon

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. 

Recent deals  

Please speak to the team about opportunities in Industrials. 

Matt McNally

[email protected]
+44 7894 736 523

Email Rupert

Brandon Matthews

[email protected]
+44 7771 401 723

Email Solomon

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? 

Parking apps 

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. 

ANPR rollout 

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. 

EV charging 

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 Hibbs

[email protected]
+44 7883 296 346

Email Rupert