As with most business sectors, lab and inspection companies’ revenues suffered in 2009 as the economic crisis hurt testing volumes and revenue growth. According to IBO’s examination of the results of five of the largest publicly held contract testing companies, revenues are improving this year as business returns to normal. In aggregate, these firms operate thousands of labs worldwide, making them major customers for lab instruments and products. In addition, financial results for these companies provide insight into end-market demand and analytical-testing trends.

Macroeconomic conditions and their effect on industry slowed acquisition activity in general for contract testing companies last year. This year, these companies have increased the pace of acquisitions, as consolidation continues to drive revenue growth. One of the largest recent acquisitions was Bureau Veritas’s purchase this month of Inspectorate, Inspicio’s commodity testing and inspection business, from 3i for £450 million ($682 million = £0.66 = $1). Prior to the acquisition, Bureau Veritas had 180 labs worldwide. The acquisition adds 150 labs. In 2009, Inspectorate recorded £246 million ($384 = £0.64 = $1) in revenues. Inspectorate’s lab testing services include product quality testing for oil and petrochemicals, minerals and metals testing for trade and upstream services, and food safety and agro-commodities testing. Bureau Veritas stated that the acquisition will further expand its commodities testing business, which had 2009 sales of £120 million ($188 million). Inspicio’s remaining testing business now consists of Environmental Scientifics Group (ESG). With more than 1,400 employees, ESG operates five divisions: geotechnical services, environmental safety compliance, lab and analytical services, materials testing, and the Eclipse Scientific Group, which provides food testing services.

Another major acquisition involving commodities testing, specifically metallurgical testing, was Campbell Brothers’ bid for fellow Australian firm Ammtec. Campbell Brothers’ ALS division operates more than 160 labs. The ALS Mineral business provides analytical-testing services for geological materials. Ammtec’s four labs generated 2009 metallurgical and mineral testing revenue of AUD 38.2 million ($29.8 million = AUD 1.28 = $1). In May, Campbell Brothers offered AUD 3.35 ($2.99 = AUD 1.12 = $1) per share for the company, or AUD 123 million ($110 million). This month, Ammtec accepted an offer that values each share at AUD 4.06 ($3.63).

A third major acquisition was private equity firm Bridgepoint’s February purchase of LGC from LGV Capital for £257 million ($389 million). LGC operates 28 labs and was forecasted to have fiscal 2010 revenues of £130 million ($197 million). For the year ending March 2009, LGC had £119.6 million ($186.9 million) in sales. The company’s three testing divisions are LGC Forensics, Life and Food Sciences, and Research and Technology. The Research and Technology division serves as the UK National Metrology Institute for Chemical and Biochemical Measurements. LGC Standards, the fourth division, sells lab reference standards.

The stand-out market last year for contract testing companies was consumer testing due to revisions to the US Consumer Product Safety Improvement Act (CPSIA) (see IBO 9/30/09). Organic revenues for Bureau Veritas’s Consumer Products division rose 12.0% in 2009. Analytical testing represented 37% of the division’s sales last year, up from 29% in 2008. However, in the first half of 2010, the year-over-year comparison weakened growth, as sales fell 4.3% on an organic basis. Testing of toys and other children’s products fell 20.6%.

Intertek’s Consumer Goods division also reported strong growth in 2009 related to the CPSIA, but noted slower growth in the second half and in the first half of this year. The company reported that two-thirds of the division’s 2009 sales were related to toy and textile testing. Similarly, SGS Consumer Testing Services’ revenue rose last year due to the CPSIA, but slowed this year. Each company expects consumer testing revenues to increase next year due to the new EU Toy Directive. To further grow this business, earlier this year, Intertek acquired the Environmental, Safety and Testing, and Regulatory business of CIBA Expert Services from BASF. The 200-person business is expected to have sales of £20 million ($30 million ) in its first year as part of Intertek.

The testing market segment for contract testing firms most drastically affected by the global recession was minerals services. The decline in fiscal 2010 revenue for Campbell Brothers ALS Minerals was attributed to tighter credit conditions, which impacted junior mining companies, as well as cautiousness on the part of larger mining entities. ALS Minerals reported that after falling 20%–51%, workflows returned to normal as of June 2009 and steadily improved to precrisis levels by March 2010. However, the company warned of excess analytical capacity and price competition.

Likewise, in 2009, Intertek Minerals Services reported excess capacity and price competition for minerals testing. The division reported improved conditions so far this year. Bureau Veritas, which has been rapidly growing its minerals testing business in recent years, reported that the mining and minerals industries accounted for 22% of the revenue for its Industry division last year. In 2009, Bureau Veritas operated 28 labs for mining and minerals testing. Mineral testing revenue for Bureau Veritas fell 15.7% last year, but improved 15% in the second quarter of 2010. Following a similar pattern, SGS’s Minerals Services revenue declined last year, but increased in the first half of 2010. In March, the company acquired Verilab, a 110-person Chilean lab that provides exploration and grade control analysis services.

In general, testing related to commodities faced difficulties last year. However, as the acquisition of Inspectorate and other companies demonstrate, it is still considered a growth area, largely due to growth in emerging nations. Campbell Brothers’ ALS Coal division reported marginal growth in fiscal 2010 due to reduction in testing volumes. For oil and gas, 2009 was mixed, according to Intertek’s Analytical Services division. Testing increased for upstream oil and gas services as well as for chemicals and materials testing downstream. However, tight cost controls by the industry impacted revenue growth. The division stated that materials testing was strong in the first half of 2010, and in July, the company signed a long-term outsourcing agreement with Air Product for its Allentown, Pennsylvania, lab. Intertek also serves the oil and gas industry through its Oil, Chemical & Agri division, which reported slow sales in 2009 due to adverse US conditions. In the first half of 2010, the division reported continued US slowness, but growth in all other major regions.

Intertek appears particularly committed to energy-related industries. Last year, it acquired three testing companies that serve such industries: Sagentia Catella AB, which provides services for batteries, super capacitor and fuel cell testing; WISco, which offers third-party inspection, expediting and coordination services for the oil and gas industry; and Aptech, and engineering consultancy company. This year, Intertek acquired Air Liquide SA’s Expertises Technologies & Services SA business, which provides cargo inspection and oil analysis for oil and gas companies, and Norca Ingenieria de Calidad, an nuclear plant engineering and inspection firm. Bureau Veritas’s energy-related investments also continued with the purchase of South Africa’s Advanced Coal Technology earlier this year.

The environmental testing market was also mixed last year, but contract testing firms continue to target the market for acquisitions. Eurofins called its environmental testing business “solid” last year, but noted slowdowns caused by the temporary closure of manufacturing sites, weather conditions in Europe and less construction activity. Eurofins also invested in environmental testing last year with the purchase of Innolab do Brasil, which provides testing for soil and groundwater projects. Eurofins also announced at the time that it was expanding its environmental business to China. Campbell Brothers, whose ALS Environmental division is focused on Asia and Australia, reported good growth in Asia in fiscal 2010. The division also benefited from the acquisition of Ecowise Environmental, which specializes in water testing in Australia. Meanwhile, SGS focused on environmental investments in Eastern Europe. It purchased Ustav Paliv a Maziv, a Czech-based provider of services for fuel testing, fuel conformity assessments and engine testing, and EKO-PROJEKT, a Polish environmental monitoring and testing firm.

Among the five firms whose results are presented in the table, Eurofins has the largest food testing business. Eurofins reported growth for the business last year, and acquired US-based Strasburger & Siegel and Institut Dr. Appelt GmbH & Co. KG. Major outsourcing agreement recently signed by the company include a five-year contract with DLG Group and an agreement with the UK’s Leatherhead Food Research. Both Bureau Veritas and Intertek are growing their food testing franchises. Intertek established new food testing labs in India and Thailand last year. Bureau Veritas plans to offer complete food safety and supply chain services.

Company 2009 Rev. % Chg. % Chg. at H1 2010 % Chg. % Chg. at

(M) Constant Rates Rev. (M) Constant Rates

Bureau Veritas € 2,647.8 3.9% 3.7% € 1,349.1 1.5% -1.6%

Consumer Products € 359.1 17.2% 12.9% € 182.7 -2.9% -1.7%

Industry € 535.8 11.2% 11.8% € 349.2 14.8% 5.2%

Campbell Brothers* AUD 825.5 -10.3% N/A

ALS Minerals AUD 205.0 -34.1% N/A

ALS Coal AUD 61.8 4.4% N/A

ALS Environmental AUD 245.0 4.3% N/A

Eurofins € 640.1 1.2% N/A € 318.6 4.5% N/A

Intertek £1,237.3 23.3% 7.0% £652.6 4.9% 5.20%

Analytical Services £137.5 15.1% 4.3% £72.3 8.1% 9.5%

Consumer Goods £320.9 32.3% 12.4% £161.9 -0.4% 1.6%

Minerals £46.7 6.6% -4.9% £28.6 30.6% 15.3%

SGS CHF 4,712 -2.2% 2.5% CHF 2,352 1.0% 1.7%

Consumer Test. Svcs. CHF 789.0 7.6% N/A CHF 407.3 3.9% N/A

Minerals Services CHF 536.0 -15.2% N/A CHF 291.1 11.3% N/A