Why We’re Excited About Non-Destructive Testing Companies Right Now
While we evaluate companies across our five core investment sectors (business services, consumer, healthcare, industrial, and technology), there are times when our investment team focuses particular attention on a small number of niche industries. Currently, companies in the non-destructive testing (“NDT”) space fall into that camp.
A number of trends are driving demand for this industry. Increasingly complex regulations, codes, and more stringent quality standards from various governing bodies mean that more companies are finding themselves in need of NDT services, while the development of more sophisticated NDT methods is leading to more companies outsourcing this work to specialized providers. Combined with an aging infrastructure across the nation, particularly in assets such as oil and natural gas pipelines, NDT companies are well positioned for growth in the coming years.
Another trend the industry is experiencing is consolidation, as few independent companies possess the size and scope of services and end markets to operate as a one-stop shop for a broad base of customers. We see a big opportunity for ambitious owners and management teams to accelerate expansion of services, end-market, and geographic capabilities via bolt-on acquisitions or mergers.
Beyond the macro factors that make this space attractive, there are a few company-specific factors that our investment team focuses on. Longevity of customer relationships, maintenance and repair services, and exposure to diverse end markets, including oil and gas, industrial, mechanical, and aerospace rise to the top.
However, the most important factor we focus on is the quality of the leadership team and company culture. Over the years, we’ve found that these two qualities are some of the best indicators of the longevity of the brand and a strong reputation within an industry. In the NDT space, where reputation is particularly paramount, this becomes even more important. We welcome the same scrutiny from owners and management teams considering us as an investor; a capital partnership is a long-term relationship, and for your sake and your company’s sake, you should ensure a good two-way fit.
For our firm, being a good partner means bringing more than just capital to the relationship. We specialize in helping our partners build the internal infrastructure needed to unlock the next level of growth. Sometimes this looks like professionalizing and deepening financial reporting, allowing for more data-driven decision-making. Sometimes this means creating a marketing or business development strategy from the ground up. Other times, we’ve led capital analysis and planning efforts to ensure our partner companies have the equipment needed to expand and operate at the highest level. In an industry like the NDT space, where consolidation is prevalent, having a partner that can shoulder the heavy burden of add-on acquisitions is important. We have resources dedicated to leading these efforts, resulting in direct revenue growth, new customers, and additional capacity.
Additionally, as part of our commitment to working with more NDT companies in the future, we’ve partnered with Jordan Carter to identify and acquire an NDT company where Jordan will step into the CEO role and lead the company to its next chapter of growth. Jordan has over 13 years of experience in the NDT industry, including as President of EcoTest Energy Services, and in a variety of roles at O-Tex Pumping, Devon Energy, and Land Services Incorporated where he drove marketing efforts and provided support to facilitate growth. Jordan’s expertise in leading NDT companies also helps solve a problem we see across many companies: that of succession. For owners that have built a successful company over decades, finding a capable replacement to entrust that legacy to can be a daunting prospect, even as the desire to retire or take a step back from day-to-day operations grows.
To hear more about our experience or explore a potential fit, reach out to our Vice President, Chris Norwood.