Business case
Our client, an engineering and inspection services group, was evaluating potential acquisitions as part of an international expansion strategy (buy-and-build / M&A strategy). The first target consisted of a rail testing, inspection and certification provider (TIC sector – Testing, Inspection & Certification) with activities in both Europe and Asia, operating across six specialised service lines. The second target entailed an inspection and certification body for pressure equipment active in the Netherlands.
Even when the target is relatively small, such as the rail testing target, significant effort may be required to obtain complete, reliable, and consistent financial and operational information, especially in carve‑out transactions and complex group structures, situations where shared services, intercompany flows, and revenue allocations are complex. Setting expectations early and maintaining full transparency with the client is essential to avoid delays and cost overruns.
In this case, while the business was well‑positioned in a consolidated local rail TIC market, several factors introduced uncertainty: limited growth potential, high dependence on a small group of government‑related clients (customer concentration risk), ambitious but unsubstantiated international expansion plans, and sensitivities in achieving the budget (forecast risk and downside scenarios).
These elements ultimately reduced the attractiveness of the transaction at this stage, suggesting that postponing the decision could reduce risk for the client
Our client ultimately proceeded with the acquisition of the pressure equipment target. The company demonstrated consistent growth, which was expected to continue into the 2024 budget which was considered realistic and achievable. In addition, the company had established a strong position within its niche market, making it a suitable partner for international expansion for our client.
For both envisaged transactions, Accuracy supported the client through a combined buy-side financial due diligence (FDD) and commercial / market due diligence workstream.
On the financial side, for both targets, we assessed historical performance, current trading and the achievability of the budget, analysed profitability by business line and identified key valuation drivers and EBITDA normalisation items (quality of earnings considerations). Provided that the pressure equipment target worked with consultants, we furthermore focused on utilisation rates (billability) and the split of direct and indirect personnel expenses to assess profitability (cost structure and margin sustainability analysis).
On the market side, we assessed the size and outlook of the national TIC market (with a focus on either rail or pressure equipment dependent on the target), the competitive landscape (market positioning, peer benchmarking), barriers to entry, and the feasibility of the target’s growth ambitions both within and outside the local market (including international expansion strategy and scalability).
Our work on the rail target highlighted material information gaps, carve‑out complexities (carve-out transactions and complex group structures), sensitivities around personnel costs, and uncertainties regarding future growth beyond the local market.