JPMorgan’s David Sweet talks ‘battleship defensibility’ of fire safety platforms; KKR’s Industrial Physics scoops up electrical testing firm from Branford Castle
Good morning, Hubsters. Senior reporter Michael Schoeck here with the US edition of the Wire from New York.
As you get ready to fire up the grill over Labor Day weekend, it’s important to know where the fire extinguisher is located and to make sure it’s up to code. Fire protection and life safety are in the spotlight this morning, as I speak with JPMorgan business services banker David Sweet to go over the market and the high valuations PE firms are paying for such companies.
In deal news, KKR-backed Industrial Physics announced the acquisition of an electrical testing and measurement equipment company from Branford Castle Partners.
We’ll wrap up with my weekly update on companies-for-sale.
Safety first
The fire and life safety protection services market has proven to be resilient during an era of slow business services dealmaking. Private equity firms continue to transact with each other and even an occasional strategic buyer.
PE Hub’s ongoing companies-for-sale coverage has shown that the fire safety market has seen deals consistently selling at multi-year high exit multiples of 18x to 20x EBITDA, representing an preeminent range for a service-focused market historically valued at the lower double-digits. Firms such as KKR, New Mountain, Gryphon and Riverside Company are doing deals for scaled fire safety platforms that are commanding deal premiums on the upper-end of that range.
The broader professional services market that fire and life safety falls under has seen deals ranging from 9.9x in the lower 25th percentile to 17.7x in the upper 75th percentile, according to SIPA privateMetrics data.
To learn more about what’s driving high valuations for fire safety deals, PE Hub turned to David Sweet, a managing director at JPMorgan focused on commercial and residential services.
Sweet offered his insights on fire and life safety PE deals and deal drivers, and also shared the firm’s outlook for dealmaking in that market for the year ahead.
What is JPM’s outlook for H2 B2B and B2C fire and life safety protection dealmaking? Are mid-market deals still happening between private equity firms and some strategics?
We are seeing a heightened interest in commercial services with continued interest across residential services across market segments. Against the backdrop of rate hikes and shifting consumer strength and sentiment, there is a defensive and revenue-stable nature to commercial services companies that is attractive to many investors.
Both the private market and public markets are increasingly coming into play for fire protection and safety, coupled with security and integration. The path to go public has become the base case for many companies that have reached $500 million-plus EBITDA.
In the private market, we’re seeing barbell deal size patterns. For example, $100 million EBITDA or less companies are compelling because they offer an opportunity for an investor to really move the needle via M&A and scale up to a path to exit that is underwritable. Conversely, some investors are focused on large-scale businesses that have an established platform that is public market exit ready. Investors are deciding if they want to buy small and grow, or buy big and exit.
There are several scaled fire safety and security alarm integration platforms in the $500 million EBITDA ballpark. We use the term ‘battleship defensibility’ for those, given their market leadership, regulatory-mandated driven demand, growth and profitability profile.
Read the full interview for more color on fire safety dealmaking trends.
Correct measurements
On Wednesday, Industrial Physics, a material testing and measurement group backed by KKR’s Ascendant fund group, announced the acquisition of Vitrek, an electronic testing and precision measurement equipment provider, from lower mid-market PE firm Branford Castle Partners.
Comprised of the Vitrek, MTI and Gage brands, Vitrek manufactures electrical safety testing equipment, power analyzers, engine vibration balancing systems, and precision measurement instruments used in the aerospace, defense, semiconductor, medical device and other industries.
The Vitrek add-on extends Industrial Physics’ reach into industries involving mission-critical precision, compliance, and safety testing standards.
“Vitrek is a strong fit with Industrial Physics’ strategy of building a global leader in mission-critical test and measurement through the acquisition of high-quality, specialist businesses,” Brandon Brahm, partner and co-head of KKR’s Ascendant fund strategy, said in a statement.
KKR acquired Industrial Physics in mid-2023 from Union Park Capital for undisclosed terms. Upon closing of the deal, the company implemented an employee ownership plan under KKR’s Ownership Works program. The company marks the third investment from KKR’s Ascendant group, which invests in North American mid- market companies as part of KKR’s Americas PE platform.
PE Hub’s Obey Martin Manayiti connected with Brahm in 2023 to go over the firm’s outlook for add-on deals for the testing and measurement company.
Companies for sale
The rate of companies testing the market remains robust as we look at potential exits in H2. So far this year I’ve been briefed by confidential sources on 194 companies coming to the market, compared with 80 at this time last year.
But we’ve seen 45 deal announcements emerge for companies tracked or reported by PE Hub for sale in 2026, compared with 33 at this time last year.
While there were no deal announcements this week involving companies I’ve been following in market, we’re optimistic that there will be more deals to be announced after Labor Day.
Got tips on companies coming up for sale? Shoot me a note at michael.s@pei.group to touch base on background.
That’s a wrap for me. Tomorrow, Nina Lindholm will be with you for the Europe Wire, and John R Fischer will be back with you for the US Wire.
Cheers,
Michael
