Health and safety service providers benefit from structural growth drivers, resilient acyclical market demand and a mature and evolving legal and regulatory framework.
In the UK, there are several reasons to think that this sector will continue to perform strongly and remain attractive to investors. Specifically…
Productivity
Companies are increasingly seeing the benefit of adopting health and safety best practice to enhance productivity. This can be by reducing the time that employees are not at work due to injury and ill-health, or by improving employee engagement.
The opportunity here is significant. In 2017, for example, the Health and Safety Executive (“HSE”) – the UK regulator – estimated the drag on the UK economy due to injury or illness was worth £15.0bn.
In respect of employee engagement, implementing such solutions can improve the relationship between employee and employer, facilitating a better company culture thereby enhancing productivity and output.
Technology is an enabler in allowing businesses to enhance productivity efficiently. Most notably, health, safety and environmental software and Internet of Things (“IOT”) solutions are a cost-effective way to improve working practices, whilst providing scalable solutions for growth. Technology can also improve the service levels of providers, allowing a data-led transition from reactive to proactive and predictive solutions. This will in turn make services increasingly valuable to customers and inherently sticky.
Corporates that are pro-active in implementing such solutions are likely to be well-placed for success and we believe that this will create a strong level of demand for specialist partners that can help UK businesses on this journey.
Legislation
The UK is a global thought leader in health and safety law. Its Parliament has enacted a breadth and depth of legislation that creates a framework for businesses to adhere to. This ranges from the broad and far reaching Health and Safety at Work Act (1974) to niche pieces of legislation such as The Diving at Work Regulations (1997). Notably, these laws are amended by successive Governments as they remain a central issue in the public conscience.
For company directors, one law is of particular focus. A statutory director can face ruinous personal fines and a jail term if they fail to adequately protect their employees under The Corporate Manslaughter and Corporate Homicide Act (2007).
Employee safety has therefore become a higher priority within the executive agenda at many UK corporates as the failure to put appropriate health and safety measures in place can have devastating corporate and personal consequences.
Regulation and enforcement
However, legislation alone does not drive adoption. Whilst some companies will be at the forefront of best practice, there are others who lag market developments and can leave themselves exposed to an incident. The regulator’s role in educating, incentivising and policing companies to implement policy is therefore important. In the UK, the HSE have proven themselves to be highly-effective at this.
To put this into context, UK business were fined £72.6m in 2018 as a result of health and safety regulation breaches and the average fine was approximately one-hundred thousand pounds. To many SMEs, a material sum of money and this does not quantify the cultural impact, the reputational damage or the operational disruption an incident and investigation could cause.
Furthermore, the HSE is very good at delivering successful prosecutions. As can be seen from the chart below, it rarely achieves less than a 90% conviction rate.
The presence of a well-established, credible and effective regulator is likely to continue to drive corporate uptake of health and safety solutions. It also disincentivises companies that are looking to reduce costs from seeking savings in this area. Given the risk to businesses, we believe it is highly likely that health and safety service providers are going to be increasingly required to help companies remain compliant with the growing body of regulation.
Export
As mentioned above, the UK is a leader in health and safety law and best practice. This provides a huge opportunity for UK businesses to export their expertise internationally.
In the USA, for example, whilst there is Federal Legislation that stipulates a ‘Duty of Care’ for employers in respect of their employees, this is not regularly enforced by Federal bodies and when it is, the fines and punishments are not material relative to their UK equivalents. This is beginning to change with certain states introducing sector-specific legislation that provides much better protection for workers and makes directors personally culpable if employees are not adequately protected.
We anticipate that this will create exciting opportunities for UK businesses in maturing North American markets in the short term.
ESG
Finally, at ECI, we are focused on ensuring that our investments generate both financial and sustainable long-term value. This approach integrates environmental, social and governance considerations into our investment decision-making throughout the investment lifecycle to identify potential risks and value creation opportunities.
What we look for?
ECI has invested in several businesses in this space, including:
- Citation – Leading provider of HR, Employment Law, Health and Safety and ISO Certification solutions to 16,000 SMEs. ECI exited Citation in 2016 generating a 5.4x money multiple for shareholders and our investors.
- Send For Help – Global leader in lone worker safety services through IOT solutions. ECI invested in December 2018 backing the incumbent CEO and senior team to continue to grow both organically and by acquisition.
- Oaktree – The UK’s leading SaaS safeguarding software sold into schools. ECI invested in March 2018 backing the existing CEO and senior team to continue to rapidly deploy their solution into the UK education sector.
We look for three characteristics in the businesses that we back. Specifically, we like growing businesses with resilient revenues and most importantly highly-motivated and ambitious management teams. These features have been common to our most successful investments.
Health and safety service providers are often a strong fit with these criteria, and we remain keen to partner with more entrepreneurs and businesses in this space.
If you would like to talk to someone about the opportunities for your health and safety business, please get in touch with daniel.bailey@ecipartners.com.
