Market share

With increased interest from both landscape companies and private equity firms, the M&A market is hot in the green industry. Valuation is high, the economy is strong and capital is available, making it a prime time both to buy and to sell.

In the last 12 months, we’ve seen some big moves:

• Aspen Grove Landscape Group (No. 6) acquired James River Grounds Management (No. 74) as well as Integrated Landscape Management, which was No. 99 on the 2017 Top 100 List.
• BrightView acquired Girard Environmental Services in September, bringing together the No. 1-ranked Top 100 company and the 39th.
• Also in the California market, Gothic Landscape (No. 5) acquired Terra Pacific.
• Yellowstone Landscape (No. 8) acquired Heads Up Landscape, a $19-million company based in New Mexico, as well as North Carolina-based Ecoscape in 2017.
• In the Northeast, TruGreen (No. 2) acquired Lawn Dawg and its 10 locations in September. The company also acquired Turfmasters.
• SavATree (No. 15) acquired Swingle Lawn, Tree & Landscape Care (No. 99).
• Monarch Landscape Companies acquired $62-million Terracare Associates (No. 21). Earlier in 2017, the company, led by former ValleyCrest executive Brian Helgoe and backed by private equity firm One Rock Capital Partners, also acquired Hort Tech Landscape and Land Systems, both in California. Monarch/One Rock Capital did not report a combined revenue for all acquired companies for The Top 100 List.
• Rotolo Consultants (No. 30) acquired Greenscape Grounds Management and Massengale Grounds Management.

Private equity makes a move.

Private equity has been showing up in a big way in recent years, due in part to the large amount of institutional capital that has been raised but not yet invested. That, combined with larger private equity firms like KKR entering the industry successfully, has led to a strong interest in the landscape market.

“People are pretty positive about the economy in general and that’s driven a lot of activity,” says Ron Edmonds, principal consultant for The Principium Group. “There’s a lot of investment capital looking for transactions and so people are just beating down the doors trying to find opportunities.”

And the landscape industry is looking good to them. Not only is it growing, but the prospect of constant, recurring revenue is appealing to investment firms. According to Brian Corbett, founder and managing partner at CCG Advisors, the market looks extremely large, but still fragmented. Add onto that the prospect of highly recurring revenue, particularly on the maintenance side, and landscape businesses get more attractive.

“If you have 80 percent of revenue contractually recurring and you maintain 90-plus percent of your clients year after year, that’s the type of business model that private equity loves to see,” he says, noting that many rate isn’t unusual for good companies.

All of that capital floating around means it’s a real sellers’ market right now. “Having been involved in landscape M&A for 20 years, I would tell you that it’s by far the single best sellers’ market we’ve ever seen,” Corbett says. “Mostly that’s because of the number of players.”

An active market – for now.

Corbett expects the market to remain active. “Because of the number of buyers that are involved, and the fact that several of them are early in their investments that they should continue to buy for the next several years,” he says.

The average age of landscape company owners also plays a factor, says Tom Fochtman, CEO of Ceibass Venture Partners. “It’s the Baby Boomer phenomenon. We have a lot of owners whose age begins with a 6. It’s retirement time and it’s the greatest time ever for them to be selling.”

But most agree that another recession is on its way sometime in the next few years, meaning that the market will likely slow down around 2020. Experts are also expecting an increase in interest rates around the same time, as well as higher labor rates.

Until then, expect to hear more M&A news since the next 18 to 24 months should be a good time to sell. “Even though interest rates are on the rise, money is still relatively cheap, and there is so much investor capital available,” Fochtman says.

Once the recession does hit, he expects investment capital won’t necessarily disappear. It will just “take a timeout so to speak,” and let the economy adjust.

“I think it’s getting harder and harder to get to be a super-regional player.” Brian Corbett, founder, CCG Advisors

Industry-wide impact.

Landscaping has always been a service-based industry and that, at least, is not going to change. “The industry is a personal business no matter what anybody says,” Edmonds says. “There always has been and there always will be regeneration going on and that’s not going to knock out new players coming on board and building their businesses the old-fashioned way.”

Edmonds and Corbett agree that the privately-held $5- to $6-million companies aren’t going away, but there will be strong competition from larger, well-funded players. Some are putting a lot of capital to work on improving their business models, focusing on operational efficiencies and new technologies, Corbett says.

“I think that if some of these larger players do all of the really smart things they’re doing and implement those practices and technologies in their companies, they’re going to be really hard to compete against,” he says. “I think it’s getting harder and harder to get to be a super-regional player that’s doing 20 to 100 million dollars.”

Leveraging private equity

SavATree is in the process of growing a national brand and to do so made three acquisitions this year. CEO Daniel van Starrenburg recently partnered with a private equity firm, using the resources to make significant moves in the Colorado market in the last year. “Basically, what we needed was access to capital and we needed a really good business partner that could help us think about this strategically and execute on this in a way that would be sensible,” he says.

After looking through his options, van Starrenburg chose CI Capital Partners and joined their portfolio in May. “I thought for the benefit of my team – all of the employees at SavATree – and for the benefit of the customers that they would be the best company for us to hitch our wagon to and so that’s what we did.”

SavATree has since built out its M&A capabilities and other departments to facilitate its growth, and it doesn’t plan to stop.

Going West.

With a strong presence in the Northeast, Atlantic and Midwest, SavATree wanted to expand into the Colorado market. The growing population there means there are a lot of new businesses and housing being built, which brings an increased demand for landscaping.

The company’s first acquisition of 2017 was Colorado Mountain High Tree Service, giving SavATree its first two locations in the state – one near Denver and one in Colorado Springs.

Then, Swingle Lawn, Tree and Landscape Care (No. 99) became available, and after a market study, SavATree made a move. That purchase gave SavATree five Colorado locations in total. “It was a perfect match because now we essentially cover the entire Colorado front, which is exactly the market we want to be servicing,” van Starrenburg says.

The company is looking at additional western growth and expansions into the Pacific Northwest, South and Southeast areas of the country for its long-term strategic growth. “That also will give us then the ability to have more revenue in parts of the country that are basically the Sunbelt that are not so weather-dependent,” van Starrenburg says.

“Even though we have acquired businesses along the way, most of our growth has been organic.” Daniel van Starrenburg, CEO, SavATree

Continued growth.

The company is also looking at expanding its existing footprint. When SavATree negotiated a merger with Thrive, Plant Health Care Solutions last May, it solidified the company’s presence in the Washington, D.C., area. The Thrive office was perfectly situated between SavATree’s two existing offices – one in Virginia and one in Maryland – giving the company another base of operations nearby.

While SavATree has been active in the M&A market in order to expand, the majority of its growth has been organic.

“Organic growth is vital to our long-term and short-term health,” he says. “And also if you think about the history of the company, even though we have acquired businesses along the way, most of our growth has been organic so we are going to continue to rely on organic growth as a major component of our overall growth.”