Decentralized Workforces and Employee Health and Safety Concerns Provide a Strong Outlook for EH&S Software Vendors
Demand for environmental, health & safety (EH&S) software providers has climbed in recent years as companies in high-risk or asset-intensive industries such as Manufacturing, Construction, and Oil & Gas have witnessed the vital role that EH&S software can play in promoting sustainable growth and operational continuity. In a recent survey, primarily comprised of manufacturing, construction, and oil & gas companies, 84% of respondents who utilize EH&S software reported that they were able to identify and remedy potential safety issues before they happen, compared to only 51% of respondents who do not use EH&S software, according to KPA and EHS Today.1 Due to its efficacy, the Global EH&S Software market, which is currently valued at $6.5 billion, is expected to expand at a compound annual growth rate (CAGR) of 11.6% to reach $11.8 billion by 2028, according to Facts & Factors.2
In the wake of the pandemic, decentralized workforces and elevated concerns surrounding employees’ health and safety have also presented substantial opportunities for sector participants offering digital training and remote work solutions. The proliferation of advanced technology and connectivity between devices is expected to propel growth as EH&S software providers look for solutions that can adapt to any work environment. Fast-moving, technologically advanced companies are poised to capture the greatest portion of segment demand as businesses look to invest in EH&S software to mitigate safety risks, promote occupational health, train employees, and manage industrial hygiene (IH) and ergonomics.
Unified and Technology-Enabled EH&S Platforms Poised to Capture Elevated Demand and Acquirer Interest
Emerging technology continues to raise the standards for workplace safety and is displacing traditional point solutions. The proliferation of big data analytics and Industrial Internet of Things (IIoT)-integrated solutions enable operational managers to build real-time, asset-level risk models to analyze and mitigate incidents. Leveraging innovative technology, businesses can implement all-encompassing operational risk management (ORM) platforms that offer protection from event, change, and performance-driven risks.
EH&S software vendors seeking to bolster market share have invested significant resources in organic initiatives to improve technology. Innovative technology and connectivity can augment integrated platforms, offering capabilities including mobile applications to conveniently capture and deliver data. In January 2022, end-to-end connected worker safety solutions provider, GuardHat released its Lone Worker solution, aiming to address safety issues most acutely felt among industrial operators that work alone or in remote locations, according to GuardHat’s website.3 The Lone Worker solution includes a variety of wearable sensors and utilizes a Software-as-a-Service (SaaS) platform with flexible hosting options that are integrated with a range of field devices including a downloadable mobile phone application. Lone Worker utilizes audio/visual communications, hazardous work check-ins, fall detection, worker-down alerts, and digital incident management with workflows that can be modified to match a company’s operations. Through this platform, organizations are able to respond to threats in real-time and transition to proactive safety by analyzing repeat threats.
Privately owned EH&S software providers leveraging innovative technology to enhance ORM capabilities are expected to attract acquisition interest and premium valuations as strategics look to bring these solutions in-house and private equity (PE) firms seek exposure to the segment’s growth. This was exemplified by New Mountain Capital and Endicott Capital’s acquisition of 3E from Verisk (Nasdaq:VRSK) at an enterprise value of $950 million (January 2022). New Mountain Capital acquired a controlling stake in the transaction, according to a press release.4 3E offers a suite of data products, information services, and online tools that facilitate compliance with EH&S requirements related to chemicals and hazardous products. “3E has a long history of innovation that has resulted in the development of differentiated and mission-critical software, data, and services for its clients. We believe 3E is positioned to benefit from favorable macro trends as companies strive to keep up with continuously evolving global regulations, provide a safer working environment for their employees, and focus on meeting their sustainability goals. In partnership with 3E leadership and Endicott, we look forward to investing significantly in product innovation, market expansion, and strategic acquisitions to further expand 3E’s market-leading position,” said Pete Masucci, Managing Director of New Mountain Capital, in the press release.
Industrial Hygiene and Occupational Health Software Enters the Spotlight
While IH and Occupational Health (OH) software have historically been overlooked in ORM platforms, businesses are prioritizing these factors in the wake of the pandemic. This has been particularly critical for companies looking to execute return to work initiatives amid heightened consumer awareness regarding employee health and safety. The digitization trend and scrutiny surrounding labor conditions are expected to heighten demand for IH and OH software solutions for the foreseeable future.
EH&S software companies reacted quickly to the pandemic, with several vendors, including DevonWay, Enablon, and SPhera, launching response management solutions specifically targeting COVID mitigation in 2020, according to Verdantix.5 Displaying the same agility amid pandemic tailwinds, EH&S software companies have continued to launch solutions aimed at improving IH and OH impacts in the post-pandemic environment. Notably, EH&S software provider VelocityEHS launched a global chemical & occupational exposure limit (OEL) database to enhance its IH software solutions in October 2020, according to a press release.6 The database simplifies the process of tracking and managing workplace stressors and OELs across nearly all locations and regulatory jurisdictions. Thus, the platform will allow its users to access the regulatory intelligence needed to achieve the highest standards of workplace health and safety.
In addition, companies have acquired EH&S software solution providers, adding offerings that will meet the current demand. Notably, VelocityEHS acquired JobX and ClaimX from MyAbilities (March 2022, undisclosed). JobX is an ActiveEHS physical demands analysis (PDA) application that helps employers match people with tasks. ClaimX is a return-to-work solution that aims to enhance employees’ transition back into the office. “As the only solution that now incorporates physical demands analysis, job matching, and return-to-work functionality, the addition of MyAbilities’ software makes our fast-selling industrial ergonomics offerings even more comprehensive. The combined solutions further promote the use of best practices and regulatory compliance around worker safety, and will positively transform how companies assess, prevent and resolve workplace injury at scale,” said John Damgaard, CEO of VelocityEHS in a press release.7
Online EH&S Training Segment Flourishes Amid Dislocated Workforces
While COVID-19 restrictions and mandates have eased, it is evident that many workers are passionate about maintaining a remote or hybrid work model. Notably, 45% of Americans indicated that they would either quit their job or immediately start a remote work job search if they were forced to return to their office full-time, according to a GoodHire survey.8
In order to optimize productivity and efficiency, companies have integrated advanced technology into business practices, accelerating the digital revolution. Due to their expansive digital EH&S training offerings, companies including Cority, KPA, and SafetySkills are poised to capture elevated demand as businesses aim to optimize training processes. Digitizing training poses many benefits, and as a result, the Corporate E-Learning market is expected to record strong growth in the foreseeable future. E-learning reduces training expenditure and can be more engaging than traditional training solutions. In addition, e-learning is on-demand, allowing employees to view training content from anywhere and complete work at their own pace without reducing productivity. Efficient integration of online learning management systems (LMSs) enables companies to easily distribute training materials and log completion, reducing EH&S workload. Further, establishing connectivity between LMSs and EH&S management systems allows companies to cross analyze training data and safety performance to deduce the most effective training initiatives.
Privately owned businesses with innovative training capabilities that can be incorporated in broader EH&S management systems are expected to garner strong demand from acquirers as strategics and private equity groups aim to capitalize on segment growth. This is exemplified by the Health and Safety Institutes’ acquisition of Blue Ocean Brain (read more about this deal in the Notable Transactions section).
Merger and Acquisition Activity Continues at Rapid Pace in To-Date 2022
Merger and acquisition (M&A) volume proliferated in 2021 with 216 deals announced or completed, an increase of 24.9% year-over-year (YOY). Strategic buyers, accounting for 47.2% of 2021 deal volume, have continued to consolidate competitors to capture market share and increase exposure to growing segments such as EH&S Software. Notably, software companies have comprised a growing share of target companies in EH&S acquisitions, making up 10.6% of total EH&S acquisitions in 2021, compared to 9.2% in 2020, and 7.3% in 2019. The growth potential and fragmentation of the overall EH&S sector also attracted substantial attention from private equity groups looking to bolster portfolio companies, with add-on acquisitions composing 37.9% of the total 2021 deal flow.
Sector M&A activity continues to heat up through to-date 2022, with 44 deals announced or completed through March 8, 2022, compared to 39 in the same period in 2021. Capstone expects strong deal flow through 2022 as acquirers look to gain exposure to expanding segments and business owners aim to capitalize on the strong valuation environment. While distributors providing personal protective equipment (PPE) or other sanitation products are not expected to witness the unprecedented acquirer interest experienced at the onset of the pandemic, buyers will still look to add these products to their platforms amid sticky hygiene trends.
With the pandemic winding down, we anticipate the corporate adoption of heightened awareness towards worker health & safety to carry on, including continued advances in software and technology. This demand, combined with the historical tailwinds in EH&S and ESG that were present pre-pandemic, is resulting in continued strong interest from the M&A community.
In Q4 2021, there were 63 M&A transactions announced or closed, compared to 53 in Q3, as sellers capitalized on the favorable dealmaking environment. Amid a monsoon of deal flow, several notable transactions occurred, including the deals outlined below:
- Health & Safety Institute acquires Blue Ocean Brain (November 2021, Undisclosed) – The Health & Safety Institute (HSI), a Waud Capital Partners-backed provider of EH&S compliance and professional development solutions acquired Blue Ocean Brain. Blue Ocean Brain delivers workplace learning and professional development content to brands to elevate the employee learning experience. The platform offers thousands of microlearning lessons across diversity, equity, and inclusion (DEI), leadership, emotional intelligence, handling change, and more, according to a press release.9 This deal marks HSI's third employee professional development and training acquisition. Prior to Blue Ocean Brain, HSI acquired Solv, which offers a suite of injury management, occupational health, and safety management solutions through its platform.
"Blue Ocean Brain brings an on-demand, daily engagement microlearning platform and content suite that enhances HSI's position and offerings in the HR training and professional development marketplace. Their mission of helping employees learn and grow every day sits squarely in our value system as an enterprise that is committed to continuous improvement and our value proposition for being a sole-source provider for EHS, compliance, and professional development needs of customers," said Chad Birckelbaw, CEO of HSI, in the press release.
- Equifax acquires Appriss Insights (October 2021, $1.8 Billion) – Equifax (NYSE:EFX), a provider of information solutions and human resources business process automation outsourcing services, acquired Appriss Insights. Appriss Insights is a provider of comprehensive risk and criminal justice products and solutions. Through the acquisition, Equifax will bolster its largest and fastest-growing business unit, Workforce Solutions, by enhancing its suite of verification capabilities, adding to its data hub, improving identity and fraud offerings, and solidifying Equifax's leading position in the market for Public and Private sector Decision Intelligence, according to a press release.10
"The acquisition of Appriss Insights leverages the Equifax Cloud by expanding the breadth of differentiated data and insights that only Equifax can provide. Our strong performance and balance sheet allow Equifax to reinvest in this accretive and strategic acquisition that will strengthen our largest and fastest-growing business - Workforce Solutions. Appriss Insights' unique people-based risk intelligence data extends the verification capabilities of our high-performing Workforce Solutions business further beyond income and employment, supporting its future growth while further diversifying Equifax," said Mark Begor, CEO of Equifax in the press release.
- GTCR acquires Lexipol (October 2021, Undisclosed) – Private equity firm GTCR entered into a definitive agreement to make a significant growth investment In Lexipol, a Frisco, Texas-based provider of policy, training, and wellness support software for first responders and public servants. Founded in 2003, Lexipol now serves more than two million public safety and government professionals across over 8,000 U.S. agencies and municipalities, according to a press release.11 Through the investment, Lexipol will further enhance its SaaS-based platform and content, expand its go-to-market teams, and bolster the company's product suite.
To discuss sector M&A activity, provide an update on your business, or learn about Capstone's wide range of advisory services and EH&S sector expertise, please contact David Bench.
KPA, “EHS State of the Industry Benchmark Report,” https://info.kpa.io/kpa-ehs-state-of-the-industry-benchmark-report-2021?_ga=2.141376752.377689050.1649879709-2039731279.1647464942, accessed April 13, 2022.
Facts & Factors, “Global Environmental Health and Safety Software Market Size,” https://www.fnfresearch.com/environmental-health-and-safety-software-market , accessed April 13, 2022.
GuardHat, “Solution,” https://www.guardhat.com/solution#workerdiv, accessed March 20, 2022.
3E, “New Mountain Capital , with Endicott Capital, Announce Closing of 3E Acquisition,” https://www.3eco.com/news-events/news/new-mountain-capital-endicott-capital-announce-closing-3e-acquisition%C2%A0, accessed March 21, 2022.
Verdantix, “Verdantix Buyer’s Guide Reveals The 13 Most Prominent Control Of Work Software Application Providers,” https://www.verdantix.com/newsroom/press-releases/verdantix-buyer-s-guide-reveals-the-13-most-prominent-control-of-work-software-application-providers, accessed March 20, 2022.
VelocityEHS, “VelocityEHS Launches First of its Kind Global Chemical & OEL Database to Simplify Industrial Hygiene & Regulatory Compliance,” https://www.ehs.com/2020/10/global-oel-database/, accessed March 20, 2022.
VelocityEHS, “VelocityEHS Acquires Job Analysis & Return-to-Work Management Technology Solutions from MyAbilities,” https://www.ehs.com/press-releases/velocityehs-acquires-job-analysis-return-to-work-management-technology-solutions-from-myabilities/, accessed April 13, 2022.
GoodHire, “The State Of Remote Work In 2021: A Survey Of The American Workforce,” https://www.goodhire.com/resources/articles/state-of-remote-work-survey/, accessed March 20, 2022.
Cision, “HSI Acquires Blue Ocean Brain,”https://www.prnewswire.com/news-releases/hsi-acquires-blue-ocean-brain-301433465.html, accessed March 21, 2022.
Equifax, “Equifax Completes Acquisition of Appriss Insights,” https://investor.equifax.com/news-events/press-releases/detail/1190/equifax-completes-acquisition-of-appriss-insights#:~:text=1%2C%202021%20%2FPRNewswire%2F%20%2D%2D,announced%20on%20August%2010%2C%202021, accessed March 21, 2022.
Cision, “GTCR Makes Growth Investment in Lexipol,” https://www.prnewswire.com/news-releases/gtcr-makes-growth-investment-in-lexipol-301399350.html, accessed March 21, 2022.
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