PROFESSIONALISM
PRIVATE EQUITY INVESTS IN LANDSCAPE INDUSTRY
By Ron Edmonds, The Principium Group P
rivate equity firms are taking a close look at landscape companies as they seek new investment opportunities for their investors. Private equity firms have owned some of the largest companies in the industry for years now. BrightView (the result of the Brickman and ValleyCrest merger) is owned by private equity giant KKR. TruGreen Lawn Care is owned by Clayton Dubilier & Rice, another huge firm. LandCare (formerly TruGreen LandCare) is owned by Aurora Capital. Now we are seeing private equity firms snapping up much smaller companies. During 2015, at least five new platform investments were made by private-equity firms. Rotolo Consultants in Louisiana, Greenscape Outdoor Services in Pennsylvania, Signature Landscape In Washing- ton, Total Intermountain Facility Services in Utah, Green Leaf Landscaping in Florida, among others, received private equity investments in 2015.
On top of those transactions, companies that were already private-equity backed made several add-on acquisi- tions backed with private equity money. Notably, one of the first private equity companies to make a landscape invest- ment was CIVC Partners, who was an early investor in The Brickman Group. CIVC Partners returned to the industry with its acquisition of Yellowstone Landscape Group in January of 2015. It looks like 2016 may be even bigger as several private equity firms are looking for opportunities in the industry. What is it that private equity likes about landscape busi- nesses? The most important factors are the basic industry growth outlook along with a high level of recurring revenue. What is the big deal about recurring revenue? Private equity firms usually involve a high amount of debt when
they “recapitalize” a business. Needless to say, they are very interested in making sure they will be able to make the re- quired payments on the debt they incur. Recurring revenue is part of the answer. To attract the most interest from private equity investors, companies need to have most of the following characteristics: • EBITDA (earnings before interest, taxes, depreciation and amortization) of $2 million or more. More is better.
• A high percentage of recurring revenue, ideally 70%-80% or more.
• A strong record of growth in revenues and earnings. • A quality, experienced management team with the pas- sion for taking the business to a new level.
If your business doesn’t meet those qualifications, you may still be in a position to benefit from private equity’s enthusiasm for the landscape industry. Most of the exist- ing private equity-backed companies in the industry are actively pursuing so-called bolt-on or tuck-in acquisitions. Businesses of any size may be attractive to private equi- ty-backed companies if they contribute to their growth goals.
It will be interesting to see how 2016 shakes out, but it
is likely private equity’s footprint in the industry will be expanding. 7
Ron Edmonds, NALP Consultant Member, is president of The Principium Group an advisory firm serving the landscape industry in the areas of mergers & acquisitions, exit planning and capital strategies. Find out more about Edmonds and Principium at
PrincipiumGroup.com.
NATIONAL ASSOCIATION OF LANDSCAPE PROFESSIONALS
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