Battered but breathing

TruGreen | No. 3
 

After Rob Gillette, ServiceMaster CEO, called TruGreen LawnCare a distraction during an earnings call in December announcing TruGreen’s spin-off from the parent company, it gave a peek into the not-so-sound relationship between the two companies.

So, it’s no surprise that TruGreen’s president David Alexander is optimistic about the company’s future without ServiceMaster as a parent company.

TruGreen was separated from ServiceMaster and is now owned by the private equity firm Clayton, Dubilier & Rice, who also owns ServiceMaster. “Being a part of ServiceMaster offered meaningful advantages in terms of scale and also provided the opportunity to continually vet our ideas with a talented management team leading diverse businesses,” Alexander wrote in an email to Lawn & Landscape.

“On the other hand, by necessity, many decisions were made based on the overall good of the enterprise rather than on the specific needs of TruGreen. We believe that this opportunity allows us take control of our destiny and to be far more nimble, focused and responsive to our customers’ needs, while allowing ServiceMaster to move forward on their own timeline for an IPO.”

Alexander says a major problem with the ServiceMaster, who sold off TruGreen Landcare in 2011, and TruGreen marriage was the operating system TruGreen shared with ServiceMaster’s structural pest control company, Terminex.

“The challenge came in the fact that they are not a weather-dependent business and we are,” he says. “So, the flexibility needs are drastically different. To use a football analogy, from a scheduling standpoint, they are able to run the play they call the vast majority of the time, while we have to be very, very good at calling an audible.”

While TruGreen is working to fix those problems, big questions remain: How does the health of the largest lawn care company in the world impact the broader green industry? And what does the newly-independent company mean for the average LCO? We spoke to some industry veterans to find out what they think.
 

A wounded giant.

Yes, even though the company has had its fair share of rough patches – an 8 percent revenue decline in 2013 revenue, 300,000 customers lost in two years and three presidents in three years – TruGreen LawnCare still ranks third in L&L’s Top 100, and posted revenue of $896 million. So, the company is still an industry-heavyweight, just one that has taken some shots to the jaw.

“I think there is some misconception among other companies in the industry that they're sort of the walking dead,” says Ron Edmonds, president of the M&A firm The Principium Group. “I think that's a big mistake to think of them that way for several reasons. One, it’s a tremendous brand and anybody that thinks otherwise is crazy. To think that that brand is tremendously damaged with the consumer is really not true. You have individual people that might have been unhappy about things but there's not some ground swell of that being a damaged brand.”

While the masses may not have turned against TruGreen, the problems TruGreen had were real. That could have meant, and still mean, open doors for the chain’s local competitors to grab some unhappy customers.

“Certainly, when a major player has issues, that it does create opportunities for smaller companies,” Edmonds says. “There are pluses and minuses about that. All in all, probably, it's better to have a strong industry leader for several reasons but not the least of which is a strong political presence when issues affect the industry. And all the potential environmental discussions, having a strong leader that speaks with a loud voice and contributes financially to the process of telling the industry story, I think is a pretty important thing.”

LCOs may have seen a slight uptick in market share from TruGreen’s troubles, but probably not a significant boost to the bottom line, Edmonds says.

Weed Man USA, another national lawn care provider and ranked 10th on this year’s Top 100, could have directly benefitted from a weakened competitor. But Jennifer Lemcke, COO, said she has been able to work alongside TruGreen on industry boards with organizations like PLANET and has seen the company giving back to the industry. She said a weak TruGreen is not good for the industry.

“I think that people forget just how much money and time that they've put into help our industry,” she says. “Both on legislation, on training and a lot of opportunities that they've actually given employees that have come through the TruGreen training and now are working for some of our suppliers, or have opened up their own company, or have gone on to work for other companies or are still working within TruGreen.”

Companies have also looked to TruGreen to get an idea of what pricing is like in a local market. Tom Fochtman, former owner of CoCal Landscapes in Denver and now runs Ceibass Venture Partners, an M&A consulting firm, says LCOs should definitely look at pricing and other aspects of the company now that it’s no longer with ServiceMaster.

“If I'm an independent operator wherever and they're in my market, I wouldn't be worried they're going to come take business from me, but I certainly would be watching them and I'd be watching what they're doing marketing wise and pricing wise,” Fochtman says. “I'd be talking to my friends, ‘Hey, if you get something from TruGreen’ in the event you don't get it at your house, ‘will you save it for me? I want to see it.’”

Plus, a strong company at the top makes the industry more legitimate, Fochtman says, and will also push the average LCO to work harder to become legitimate competition.

“I think it forces you as the traditional independent to become strong,” Fochtman says. “You have to if you want to play against those guys. At a minimum you'd better be doing what they're doing operationally and marketing wise or you're going to fall behind. So, if they do well, it forces you to raise the bar in your own company.”

Overall, while LCOs may have been able to gain a little market share, it’s very small compared to the benefits a strong industry-leader can bring to them – political presence, training talent and a benchmark for pricing.

“Maybe a little bit of a sales upside but big picture wise, I don't think it's had that big of an impact in the industry, Fochtman says.“The new customers, they might get by taking advantage of the wounded gorilla isn't going to be as advantageous to them as if TruGreen was strong and those top companies were strong and attracting more talent and just overall having a better image to the outside people,” Fochtman says.
 

What’s next?

Now that TruGreen is no longer a part of ServiceMaster, expect a more nimble company flush with cash from its investors.

“They're not buying it to keep it. They're buying it to build it and sell it,” Fochtman says. “They'll buy market share, eliminate competition and in markets where they don't have a lot of presence, they'll buy a pretty good size company as a platform opportunity. ... I think it provides another exit strategy for the independent guys because I would imagine they will acquire.”

Alexander says he expects the company to rebound by doing one simple thing: producing great-looking lawns.

“To regain our customer count to historic levels, we must deliver on our promises,” Alexander says. “Our customers want a healthy green lawn from a company they can trust and they want a lawn specialist who will knock on the door and take the time to answer their questions. It’s that simple.”

He added that TruGreen’s problems didn't represent how the industry performed as a whole.

“The challenges we brought upon ourselves were self-inflicted and were not at all indicative of any shift in the overall market for professional applicators,” he says. “This is a strong and vibrant industry which we believe will grow based on macro-economic factors such as increases in household income, housing starts and an uptick in employment. The aging population and the shift in the 50-plus demographic will bode well for the lawn care service industry and is a positive indicator of market growth across the board.”

Edmonds says he has talked to a few corporate employees and franchisees at TruGreen and they are excited about the changes. He added people in the industry he’s spoken with are high on the company’s new leadership, even though Alexander has come from outside the industry, serving in executive roles with Family Dollar and Citi Trends, an urban retailer.

“They were real cautious when David was appointed president because he came from such a different kind of industry,” Edmonds says. “But everybody I talked to is real positive about his leadership and I kind of believe him too when he says that (they've) already done a lot of the things and have a lot of things in place that are going to allow the company to improve and grow.”