KKR eyes consolidating test and measurement sector with Industrial Physics

'We can acquire companies that may be small, but they are still going to be a market leader in the specific niche application that they serve,' said KKR's Brandon Brahm.

KKR recently completed its previously announced buyout of Industrial Physics, a Boston-based company that aims to “protect the integrity of packaging, products, and materials for manufacturers, production lines, and laboratories all over the world,” as its website puts it.

PE Hub spoke with Brandon Brahm, a partner at KKR, and Barry Lyon, the newly appointed CEO of Industrial Physics, about the growth opportunities for the company.

Industrial Physics makes equipment for testing myriad materials, such as plastic, paper and ink, for products used in a range of industries, including medical devices and consumer electronics. Customers use Industrial Physics’ offerings in product development.

“They can see opportunities for improvements and can often do more with less inside of a production facility,” said Lyon, who previously served in senior roles at companies including Danaher Corpor, Sea-Bird Scientific and Hach.

Barry Lyon, Industrial Physics, and Brandon Brahm, KKR

“Our customers are trying to work more efficiently,” Lyon said. “That might be for sustainability goals, such as using less plastic in their products, or they may be using new materials that are more sustainable.”

“Companies are trying to set up more sustainability goals and create more sustainable products,” he added. “We enable that by helping them understand the performance of their product through instrumentation.”

Acquisition potential

KKR’s Brahm sees opportunities in the fragmentation of the testing and measurement industry.

Industrial Physics is a “very attractive” business to use as a platform to consolidate the sector. He said KKR is seeing M&A opportunities, not just in the US, but in Europe and elsewhere around the globe in this sector.

“The marketplace is very fragmented because the use applications are fragmented, and so we can acquire companies that may be small, but they are still going to be a market leader in the specific niche application that they serve,” Brahm explained.

The New York PE firm also sees demand growing, even in the face of a tight macroeconomic environment, because the services that Industrial Physics offer are non-discretionary in nature. “Products that we make are instruments that help ensure quality and safety,” Brahm said. “Those are not factors you are going to shortchange regardless of the macro environment.”

Another factor, Brahm added, is: “Our strategy at KKR is to be able to support our companies with the tremendous resources that we have within the firm and that can add a lot of value regardless of the macro environment.” This helps their portfolio companies to “accelerate faster than their competitors because they are able to access more resources as a result of what we have available within KKR.”

Ownership works

Being part of KKR’s portfolio is an interesting factor for Lyon, especially considering the firm’s employee ownership scheme.

KKR plans to support Industrial Physics in implementing a broad-based employee ownership program, which will give employees the opportunity to participate in the benefits of ownership of the company. Since 2011, KKR has awarded billions of dollars of total equity value to over 60,000 non-management employees across over 30 companies.

“I think it’s just such a beautiful arrangement when everyone is working towards a common goal,” Lyon said.

Industrial Physics is not the only investment KKR has made recently in the test and measurement sector.

Earlier this year, KKR committed up to $250 million in funding for the new executive-led testing inspection and certification (TIC) platform fronted by longtime senior industry executives Amit Agarwal and Andy Silvernail.