17/12/2020 - Market news

Clearwater International completes six business services transactions in the final quarter of 2020

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Clearwater International has advised on six business services transactions in the final quarter of 2020, with a combined value in excess of €250m. International Head of Business Services Marcus Archer and Business Services Partner Rob Burden explain how innovation was key in delivering results in such a tough economic climate.

Completed transactions have covered a variety of sub-sectors including education and training, TICC, HR and compliance and maintenance services. There are several key themes and drivers of demand which have emerged within the sector including:

  • Innovative and disruptive business models
  • Technology platforms and strong differentiation
  • High quality of earnings
  • Strong revenue visibility
  • Operational flexibility
  • Compliance drivers or regulated end markets

Five out of six deals completed by Clearwater were either platform investments made by private equity, or strategic acquisitions by private equity portfolio companies, demonstrating the continued appetite of private equity funds for high quality, technology enabled and differentiated operators within the sector.

We have witnessed a flight to quality from private equity funds in recent months

Marcus Archer explains, “We have witnessed a flight to quality from private equity funds in recent months across all sectors and this remains particularly true within business services, with significant competition to back strong management teams’ growth plans.”.

Education and training has been the most active sub-sector for the team, with three deals completed in the final quarter across adult education and employability, e-learning, and graduate training.

Investors have been drawn to leading operators in the sector due to its resilience, the opportunity for technology led disruption and continued government commitment to support and upskill the labour market in the wake of COVID-19.

The most successful operators within the education and training market were quick to pivot their business models to fully embrace digital learning

Rob Burden said, “The most successful operators within the education and training market were quick to pivot their business models to fully embrace digital learning, instead of, or alongside face-to-face delivery. This is exactly what several of our clients did early on in 2020, launching an array of virtual – and very disruptive – new learning platforms. This fast action to turn a traditionally classroom led environment into a fully digital platform has enabled these businesses to continue to explore M&A options and secure a new investment to realise their ambitions during this unstable period.”

In the education and training sector, an excellent example was training provider Back2Work, who Clearwater advised on securing investment from Palatine Private Equity. When the pandemic struck the company, which specialises in delivering intensive training courses to help the long-term unemployed return to work, retrain or reskill, moved to a virtual model very quickly, with management realising that further digital adoption was crucial.

Another private equity deal saw Clearwater provide support to Inflexion on its majority investment in technology and training services provider Sparta which trains graduates from a diverse range of backgrounds in a range of technology skills such as data engineering, software engineering, and business analysis.

The third deal in the sector, which has recently been announced, involved the sale of iHASCO, a health and safety e-learning provider to Citation, the KKR-backed HR and health and safety services provider.

Human resources departments have had to navigate unique and increasingly complex challenges, as the world has adapted to new and different ways of working. This impact on businesses has made high-quality HR solutions providers of particular interest in the market. This became evident during the sale of employment law, HR and health and safety provider Ellis Whittam, to specialist services group Marlowe, a deal which provided an exit for private equity player LDC. Ellis Whittam provides support to more than 35,000 UK employers across the private and public sector, now with the support of Marlowe, the business will continue to provide excellent services to clients, helping them to navigate the new working world.

The TICC sector has also ridden out the COVID-19 storm. In another deal involving Inflexion, Clearwater advised Elmhurst, the UK’s leading independent provider of energy assessment training, software and accreditation, on its sale to Inflexion-backed Phenna, a group of specialist businesses focused on the TICC sector.

Finally, the sixth business services transaction saw Clearwater advise NMC, a surfacing, engineering and external environment maintenance business, on its sale to winter maintenance provider, GRITIT, a portfolio company of Total Capital Partners. NMC’s customers are spread across numerous sectors including, retail, industrial, commercial, healthcare and education.

Future prospects

Archer added, “Looking ahead, there is little doubt that services businesses, particularly those that are tech-enabled, will continue to attract interest from trade and private equity investors. In particular, we expect the training, TICC, HR and compliance sectors to remain the subject of considerable M&A interest in years to come as we live through this period of huge digital transformation.

For instance, if you take the education and training market there are a number of huge drivers at play. The need to re-skill those who have lost their jobs due to the effects of COVID-19, the huge shift towards e-learning, and a corporate training market that is rapidly moving online - to name but a few.

Indeed, across business services, our pipeline is already looking very strong for the year ahead and we expect to be just as busy delivering solutions for our clients in 2021."

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