Private equity firms are getting priced out of deals in many industries because strategics have plenty of currency be it cash or stockat their disposal. But the trickledown effect of this bodes well for small companies, such as landscaping businesses.
Mathew Burpee, a vice president with Toronto private equity firm Lynx Equity Ltd., refers to financial sponsor deals involving companies with less than $2 million in Ebitda as “micro PE,” and said what’s going on in the landscaping and lawn care industry illustrates it in practice.
Burpee worked on a deal involving a Lynx subsidiary, Succession Capital Inc., which made its first foray into the industry by acquiring Tooele, Utahbased Intermountain Total Facility Services LLC, on July 13. Intermountain operates in Utah, Wyoming and Idaho through subsidiaries Turfit Landscaping, American Maintenance and Executive Janitorial.
Other PE firms, such as One Rock Capital Partners LLC, SB Capital Partners and CIVC Partners LP, have made deals in the space, too, which doesn’t surprise Burpee, who described the landscaping and lawn care industry as “fragmented.”
In a phone interview, he said most landscaping firms are small “mom and pop” operations and believes that there could be potential for further acquisitions in the industry, especially because companies generate good cash flow and predictable revenue streams.
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In addition, the landscaping and lawn care business is easy to understand while labor is cheap and readily available, he explained.
The challenge, he noted, was differentiating between firms, since there are many small and very similar firms.
What impressed Succession about Intermountain was that it had strong management team, a sturdy and long standing client base and growth potential. Only recently has the company expanded into Wyoming and Idaho, as well as into the large Salt Lake City market. The company has already dominated parts of rural Utah, Burpee asserted, adding that Intermountain is “selfsustaining” and doesn’t need any changes to its business model or management.
Succession found Intermountain through Salt Lake City business broker United Mergers & Acquisitions, Burpee said. He explained that Intermountain “had been contemplating a sale” as several of its partners wanted to leave the business for reasons Burpee did not know. Intermountain officials couldn’t be reached for comment.
Succession closed on the deal at the beginning of July and acquired the privately held company with cash. The acquisition required having to take on debt, though Burpee declined to say how much.
Lynx associate, Edric Low, also worked on the deal. Minden Gross LLP partner Brian Temins served as the legal counsel to Succession. Moss Adams LLP provided Succession with financial advice.
In the uppermost reaches out West, One Rock Capital Partners on May 18 acquired Signature Landscape Services LLC for undisclosed terms. The Redmond, Wash.based company provides commercial landscaping services to more than 500 properties in the Seattle metropolitan area, and New York PE firm One Rock Capital Partners hopes to “pursue a regional consolidation of landscape services companies in the Western United States,” according to the deal announcement.
On Jan. 13, Chicago PE firm CIVC Partners acquired Yellowstone Landscape Group Inc., a commercial landscape maintenance firm based in Bunnell, Fla. Yellowstone owns subsidiaries Austin Outdoor and BIO, which provide landscaping and maintenance services to homeowners associations, municipalities, office parks and resorts from its 16 offices throughout Florida, Texas, South Carolina and Georgia.
Unlike Succession, however, CIVC Partners knows the landscaping industry well. Neither Yellowstone or CIVC officials would return calls but, according to a statement issued by Yellowstone CEO, Tim Portland, CIVC has almost two decades of experience actively investing in landscape maintenance companies, dating back to its Jan. 14, 1998, acquisition of Rockville, Md.based Brickman Group Ltd., which it sold in January 2007. On the Yellowstone deal, Kirkland & Ellis LLP provided legal counsel to CIVC and Harris Williams & Co. worked as CIVC’s financial advisor. Moore & Van Allen provided legal counsel to Yellowstone.
While Succession invested in the landscaping sector in the western plains region, and CIVC in the Southeast, SB Capital Partners has stayed, well, in its backyard.
The San Diego PE firm on Oct. 2 acquired Aerations Only Inc., which serves that metropolitan area and provides lawn care to more than 10,500 homes. The business has been renamed The Lawn Guys LLC.
SB Capital Partners and Aerations Only officials didn’t return calls, but the PE firm is interested in expanding in the sector. SB Capital Partners cofounder Daniel Shkolnik noted that the firm wanted to “transform this proprietorship into a dominant lawn care enterprise and become a household name” in a statement after the Aerations deal was made, and the other SB Capital Partners cofounder, Brandon Blum, said the firm will work with Aerations CEO Joel Soper to expand the business into new markets and new products.