New innovations, the complexity of the supply chain and long-term trends in the instrumentation manufacturing and distribution industry are attracting KKR to invest in the fragmented Testing, Inspection and Certification (TIC) subsector.
Through its Ascendant strategy, KKR is committing up to $250 million in funding for the new executive-led TIC platform fronted by longtime senior industry executives Amit Agarwal and Andy Silvernail.
PE Hub caught up with Brandon Brahm, partner and co-head of KKR’s Ascendant strategy, as well as Agarwal, to discuss opportunities that the firm identified with this investment.
“This is a sector that we followed for years, and it has a lot of really great characteristics that we like,” Brahm said. “Markets such as life sciences and food safety have durable secular trends, where the products and services are very technical and mission-critical, and yet the markets are very fragmented.”
The KKR Ascendant strategy pursues investments across seven dedicated industry vertical teams and seeks to deploy the full resources of KKR to support management teams in growing market-leading businesses.
Even though Brahm mentioned life sciences and food safety, he indicated that the investment is intentionally constructed more broadly within the TIC space. “One of the exciting things about what we are doing is that we have the opportunity to first envision what we are building towards, and then go and build that, based on the products and services that we see as the most impactful.”
Agarwal, who will serve as CEO of the new platform, has spent his career working at life sciences equipment provider companies, including Thermo Fisher Scientific and OMEGA Engineering. Silvernail, who will serve as the chairman, has led several companies, including at Madison Industries, one of the world’s largest privately held companies; Rexnord; IDEX Corporation, Newell Rubbermaid and Danaher.
“The idea here is that there are customers who have all these technical instruments that they are using that are constantly getting more innovative and complex,” Agarwal said. “They need somebody to come in and simplify it for them, to be able to support them with services ensuring maximum utilization.”
Some opportunities for the mid-market include tapping markets overlooked by big players that are focused on big clients. Another opportunity is to consolidate service providers who are, in most cases, divided along regional markets, Agarwal said.
“There is a certain level of support that the original equipment manufacturers can provide, but that support is mostly limited to the big customers and for higher priced instruments,” he said.
Challenges abound when building a platform in an economic environment, such as the current one. Brahm points out that KKR has a lot of experience investing across all kinds of different cycles and has lots of resources to support that.
“What’s great about the opportunity we are focused on in TIC is that you have end-markets that tend to be pretty economically resilient and often non-discretionary in nature. Second, these are products and services that are high-impact to customers and hard to defer,” he said, citing examples such as the regulatory requirements around the care of equipment, where companies cannot forego inspections and other routine maintenance for health and safety reasons.
In the middle market landscape, Brahm said KKR can execute deals with more certainty than would be typical in this kind of environment.
Building through M&A, especially in the mid-market, can work in the investment’s favor too, especially for family owned companies where founders may be trying to salvage their businesses against the tightening economy, Agarwal said.
KKR’s employee engagement model, which makes all employees shared owners of the business, can be enticing to founder-led businesses to consider joining the new investment. “I think that is surely going to be a key recipe for success,” Agarwal said.
Looking into the future, Brahm said: “Because of the team that we have assembled with Amit and Andy and our capabilities, I think there is an opportunity to build something really scaled and potentially global in nature.”