Testing, Inspection and Certification (TIC) companies provide services to a wide range of industry sectors including consumer goods, food and agriculture, oil and gas, construction, chemicals, metals and mining, industrial manufacturing, transportation and logistics, automotive, transmission and distribution and other industries.
Independent TIC companies (which account for around 40 percent of global activity) play a critical role in enforcing a variety of standards and legislation to enhance safety, conformity, and quality. These companies are expected to continue to increase their share of a growing market as countries increasingly move from a voluntary-based risk management approach to mandatory testing and certification regimes, developing countries adopt stricter TIC standards as their citizens expectations of safety and quality grow, and companies increasingly understand the role the TIC industry can play in reducing long term ownership costs. Investors are also increasingly focused on environmental, safety, and social impacts and TIC providers play a key role in helping companies measure and reduce their impact on society.
The TIC industry is still characterized by a small number of global players and a large number of local players focused on specific industry verticals. M&A activity which has been incredibly robust in recent years will likely continue to be key to larger players’ growth plans, while private equity interest remains high due to the industry’s fragmented nature, low capex requirements, healthy margins and free cash flow generation. While acquisitions have helped strategics grow revenue at levels which outpace sector growth, many have been margin dilutive. The industry in general has struggled to grow margins due to limited pricing power, an inability to take advantage of trends such as offshoring, and relatively high employee leverage.
TIC providers exposed to commodity markets have seen highly volatile conditions in recent years, with many moving their focus from the upstream to the mid and downstream industries which also face an uncertain near to medium term outlook. Overall, the industry faces potential headwinds due to slowing organic growth and uncertain macroeconomic conditions.
Technological changes have and will continue to have a major impact on the TIC sector, creating new risks and applications through automation, virtual twins, and blockchain technology. Technology will open new markets such as cybersecurity, grow margins through automation, but also lead to risks for traditional services as real time sensors, drone inspections, simulations, and data analytics reduce the need for traditional TIC services.