Test & Measurement Market Update – August 2023

OEM Shift to Third-Party Service Providers, Strict Regulations Drive Sector Tailwinds

Capstone Partners released its premier August 2023 Test and Measurement Market Update, reporting that the Test and Measurement Services space has undergone an increasing shift from original equipment manufacturers (OEMs) looking to outsource highly technical services by creating mutually beneficial relationships with regional tier 1 service providers. Third-party service providers generally have a broader technical skillset, can service more types of instruments across a wider range of equipment disciplines, and ultimately minimize downtime of mission-critical equipment, resulting in third-party test and measurement services providers increasing the penetration of overall industry revenues. Transaction activity in the sector has been uplifted by private equity buyers engaging in add-on acquisitions to capitalize on a stringent regulatory environment and a fragmented third-party service provider landscape driven by larger trends of OEMs outsourcing calibration and other services to tier 1 regional providers.

Global merger and acquisition (M&A) activity in the Test and Measurement market has continued to flourish, with 84 transactions announced or completed in year-to-date (YTD) 2023, marginally outpacing YTD 2022, primarily driven by recession-resistant demand for calibration and testing solutions stemming from stringent compliance and regulatory requirements in the Food & Beverage, Aerospace & Defense and Life Sciences end markets. Regulatory tailwinds and broader industry trends have fostered increasing interest from Industrial Technology-focused private equity groups, while strategic buyers have remained acquisitive in the sector. In contrast to the current volatility in the broader public equity market, dry powder has remained high and balance sheets strong, enabling platform, tuck-in, and add-on acquisitions to occur.

M&A transaction multiples in the Test and Measurement sector have averaged a robust 2.9x EV/Revenue and 16.4x EV/EBITDA from 2020 through YTD, nearly matching the broader Industrial Technology industry average revenue multiple of 3.1x and outpacing the industry’s average EBITDA multiple of 14.6x during the same period. Although large-scale deals in the sector have continued to garner premium valuations, the middle market has also received favorable M&A pricing.

Also included in this report:

• Notable regulatory amendments from the Environmental Protection Agency, Federal Aviation Administration, and Food and Drug Administration and how these have driven sector demand.
• A breakdown of M&A activity by segment and what investment criteria buyers have prioritized in each segment.
• How cross-border M&A activity has continued to proliferate in the sector and why foreign acquirer interest in stateside targets has risen.

For more information on the Test & Measurement Market trends featured in this report or to speak with one of our Industrial Technology M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.