NEWS: Inside the Industry

Mergers and Acquisitions: JDL Completes LESCO Acquisition

John Deere Landscapes will continue to grow, but not through closing branches and letting go of employees in light of the company’s purchase of LESCO, says Tom Childers, vice president of marketing for John Deere Landscapes.
  
“John Deere Landscapes will grow its presence in the green industry through a commitment to the lawn care and maintenance markets,” Childers says. “We will grow through providing valued products, services, solutions and not through closing branches or letting go of valued employees.”
 
The voting results by LESCO shareholders to accept the purchase by John Deere Landscapes were announced in a special shareholders meeting that lasted a mere five minutes in downtown Cleveland on May 3.
LESCO is based in Cleveland, while John Deere Landscapes is headquartered in Alpharetta, Ga.
 
That vote signaled the completion of John Deere’s acquisition of LESCO. About 67 percent of shareholders who voted approved the purchase.
 
LESCO has 332 service centers and 125 stores-on-wheels. Childers says John Deere Landscapes has always had its eye on the lawn care and maintenance markets.
 
“They are stable markets and provide a little more predictability than the construction side of the green industry,” he says. Already, some branches are sharing delivery fleets so as to maximize delivery and response time to customers, Childers says. “The goal is to make the entire network of employees, service centers and branches more valuable to the contractor by solving more of the contractor’s day-to-day business challenges,” Childers says.  “The real challenge is to meet the contractor’s total business needs so he can grow while maintaining a competitive position,” he says. “John Deere Landscapes believes it has figured out that part and with LESCO’s help, can bring it to the lawn care and maintenance markets when it rolls out the Partners Program and Business Solutions to LESCO customers in June.”
 
Those programs range from discounts from companies like Sprint, Office Max and Paychex to programs from National Health Access, which offers comprehensive health care solutions.  – Mark Phillips

On the Road: Snow Expo Attendees Learn Inexpensive & Effective Marketing Techniques

Judy Guido, principal of Guido & Associates, a green industry business management consulting firm, told attendees at the inaugural Snow Industry Exposition & Conference in May that having a marketing strategy helps businesses to thrive, yet only 6 percent of companies employ the practice.
 
“You need a blueprint to say how you’re spending your three most valuable resources: people, time and money,” she says, adding companies with a plan have 47 percent higher profits, 92 percent higher customer satisfaction and retention ratings, 64 percent employee retention, 88 percent owner employee balance, and are No. 1 or 2 in their respective markets.
 
To craft a good plan, think about clients’ expectations. Guido interviewed 3,500 different customers who use green industry services and found they value easy interaction cost. Questions they ask companies include: How quickly can I get to you? How quickly can you get your contract/proposal to me? How quickly can your people get here? How convenient is it?
 
In addition, know your target audience. Increasingly, women are becoming a powerful purchasing force, Guido says. Not only does the female population talk and make referrals more than men, but American women are the wealthiest consumer segment in the world, with buying power of $9.8 trillion per year. On the residential side, 81 percent of women take charge of the household’s checkbook, while more than half of the decision-makers in the corporate world are women.
 
To best market to this group on the residential side is to find a way into their social networks, i.e. professions, sports/hobbies and charities. On the professional side, market to organizations like the National Society of Women in Construction, Guido says. – Heather Wood

Cutting Costs: Prepare for $4 Gasoline

With gas prices near record highs, experts say $4-a-gallon gasoline is just around the corner this summer.
 
Already California gas prices average $3.48 a gallon, according to AAA, and one San Francisco service station was charging $3.95, according to GasBuddy.com.
 
Refinery problems and strong demand are the two main reasons cited for the run-up. Prices hit a record high of $3.07 a gallon on May 6, per a Lundberg survey. The Energy Information Administration even raised the projected average summer gasoline price by 14 cents per gallon from its original estimates. Retail regular grade motor gasoline prices are now projected to average $2.95 per gallon this summer compared with the $2.84 per gallon average of last summer. During the summer season, the average monthly gasoline pump price is projected to peak at $3.01 per gallon in August, compared with $2.98 per gallon last July.
 
This all comes just as the landscape industry gears up for the busy summer season. “I know you should plan on fuel prices rising going into the summer, but I never thought they would get as high as $4 per gallon,” says Todd McCabe, president of McCabe Landscape Group, Wrightsville Beach, N.C.
 
But “it’s all part of the game of doing business,” says Sal Mortilla, owner, Landscapes Unlimited, Long Island, N.Y. “It costs me $100 to fill up my dump truck.”
 
Andrew Aksar agrees. “Just be glad you don’t have a truck that takes up to 100 gallons,” says the president of Outdoor Finishes, Walkersville, Md. “You should see the looks on people’s faces at the filing station when the clerk says to me, ‘OK, pump 14, that’ll be $268.65.’”
 
The result will be price increases and fuel surcharges for customers in order to cover the increased operating costs, most contractors report.
 
“We have to raise prices big time – we have no choice,” says Roger Meshberger, owner of Nature’s Design and Landscaping, Ellenton, Fla. His installation and renovation services, which range from $500 to $50,000, will increase by 5 percent due to gas prices. Meshberger says he was hit the hardest on fuel costs for his pickup truck and deliveries for materials. Deliveries, which were once $10, are now $35 but expected to almost double.
 
“There’s no way you can absorb $4 per gallon and plan for it,” adds Kory Ballard, president, Perficut, Des Moines, Iowa, explaining the company has been adding fuel surcharges to its clients’ bills for two years. “We charge 4 percent for maintenance and 2 percent for installation work that was bid months ago. If we bid something now we do our best to account for fuel. We also raised all prices 5 percent this year in maintenance to help. So far, people don’t seem to mind the surcharge.”
 
While some contractors are surprised by the fuel price increase predictions, others expect it, saying it will keep going until there are alternatives.
 
In addition to fuel surcharges and price increases, some companies are also tightening their routes, eliminating customers located out of their preferred service radius, giving their employees fuel cards to better track spending and trying to run leaner organizations any way they can to cut costs.
 
For instance, Doug Austreim, owner of Austreim Landscaping, owns a couple of trucks that run on propane, which costs just more than $2 a gallon. “They get a little less fuel economy but have longer lasting engines than gasoline,” he says.
 
Another landscape company – Nanak’s Landscaping, Longwood, Fla. – has experimented with hybrid vehicles to help reduce costs and waste. Recently, Nanak’s converted 37 pickup trucks and SUVs the managers use to visit clients that get only 15 miles per gallon to 30 Toyota Scions and seven hybrid Toyota Priuses that get 50 mpg and 30 mpg, respectively. This one change will save the business 15,000 gallons of gas this year, the company predicts.
 
Are there other ways you’re covering these costs at your business? If so, share your ideas at www.lawnandlandscape.com/messageboard. – Nicole Wisniewski

Mergers & Acquisitions: Will Change Do Them Good?

Since November 2006, a big question throughout the lawn care industry has been “What is going to happen with ServiceMaster?” November was when ServiceMaster Chairman and CEO J. Patrick Spainhour said the company was exploring “strategic alternatives,” including a possible sale.
 
Rumors swirled about who was courting ServiceMaster, parent company of TruGreen ChemLawn, TruGreen LandCare and other home services. Was it another big business already involved in service industries, a large corporation not involved in service industries, or a private investment equity firm looking to take the publicly traded company private?
 
In March, those rumors were put to rest with the announcement that ServiceMaster had entered into a definitive merger agreement to be acquired by an investment group led by Clayton, Dubilier & Rice (CD&R) for a total value of $5.5 billion, which includes the assumption of $800 million in debt.

NEEDED FIX? News of the ServiceMaster sale did not come as a surprise to those following the company, which had been facing challenges in recent years, including a falling stock price and higher operating costs.
 
“I know that they’ve had some issues for some time now. They’ve had some turnover with their top management, including their chairman (Jonathan Ward, who resigned in March 2006),” says Harvey Massey, CEO of Massey Services, Maitland, Fla. “Their stock wasn’t performing well and I think their stockholders were getting a bit uneasy and asking difficult questions. That’s when I think they started marketing the business to be sold.”
 
Many in the industry speculate that stockholder pressure picked up once Ward was ousted and provided a sizable severance package, after which two of the bigger investors were supposedly pushing for radical change.
 
Also in November, Spainhour announced that ServiceMaster appointed Morgan Stanley and Goldman Sachs  to advise it on strategic alternatives. But many in the industry believe talks with CD&R were well underway when this announcement was made. “My guess is that announcement was a warning notice to investors that a deal was close,” says Pam Jordan, president of Acquisition Strategies, Tampa, Fla. “With a public entity you’ve got to do all the security law requirements. It is a complicated and time-consuming process. I can’t imagine they started exploring things in November and it already is a done deal.”

GOING PRIVATE. So what does the sale mean for ServiceMaster? Only time will tell, but ServiceMaster Group President Katrina Helmkamp told Lawn & Landscape that the company will be able to focus more on long-term investments by going private, as opposed to being a publicly traded company, where investments need to be reasonable within any quarter.
 
ServiceMaster’s TruGreen divisions, for example, always were hampered by the seasonality of their businesses, Helmkamp says. “TruGreen is a great example where revenue drops off in the fourth and first quarters, and as a result we have not historically made large investments in those time periods because it would hurt the quarter’s result,” she says. “Going private allows you to make those kinds of investments if they are the right thing for the long term; for example, doing additional direct mail campaigns in the fourth quarter.”

WHO IS CD&R? The key, of course, to the success of the “new ServiceMaster” will be how it is managed, supported and funded by CD&R. A look at its history might provide some answers. CD&R specializes in turnaround situations. Targeting underachieving units of large corporations, CD&R typically structures a leveraged buyout and works to improve operations.
 
CD&R has experience with branded businesses operating in multi-location formats such as Hertz and Kinko’s that CD&R Partner Thomas Franco believes is “directly relevant to ServiceMaster.” “ServiceMaster, similar to previous multi-location businesses we acquired, has outstanding investment characteristics,” he says. “In particular, operating in fragmented markets provides attractive upside opportunities and significant downside protection. ServiceMaster has a No. 1 market position in all of its primary businesses. In addition, its large number of locations and customer base of approximately 9 million create a diversified operational base from which to build.”
     
But CD&R’s history also suggests its short-term goal might be to turn around ServiceMaster, with a long-term goal of selling it. For example, CD&R purchased Kinko’s in 1996 and then sold its interest in Kinko’s to FedEx for $2.4 billion in a 2004 cash transaction.
  
Industry observers think ServiceMaster’s success depends on how patient its “new masters” are. If they are in it for the long-term, they’ll support them and give them the finances they need to succeed. But the amount of debt they are taking on initially in addition to their acquisition growth plan could make cash flow become an issue, some speculate.
 
The $800-million debt assumed by CD&R has many speculating it may sell some ServiceMaster divisions to recoup some of that cash. During an audiocast following the March announcement, CD&R Partner Richard Schnall said the company has no immediate plans to sell any of ServiceMaster’s companies.
 
While questions still remain about ServiceMaster’s long-term plans, the consensus among those in the industry seems to be that CD&R’s track record in turning around companies, combined with inherent benefits of “going private,” could be the cure for an ailing company. – Brad Harbison

Editor’s note: At press time, the transaction had not been approved by the ServiceMaster Board of Directors. The next step is for ServiceMaster to issue a proxy statement, followed by a shareholders meeting (targeted for late second quarter or early third quarter) at which shareholders will vote. A majority of shareholders must approve the sale.

Owner Issues: Staying Sane During Peak Season

Late nights and work-filled weekends seem to be the norm among owners and managers in the landscape industry – especially during spring and summer.
 
Being stressed out and overworked is one of a landscape business owner’s top five concerns – right up there with rising fuel costs and increasing interest rates, according to Lawn & Landscape research.
 
Contractors on the fast-track to burning themselves out should stop to consider the potential implications of their workaholic tendencies – neglecting family and friends and impairing personal health – and find a way to balance these with the traits that make them successful. There are many simple ways to alleviate stress. The National Federation of Independent Businesses offers the following tips:
 
Block Time Out. In the same way as you set blocks of time aside for work tasks, schedule time for your personal life. Helpful hint: Schedule a weekly outing with your children, spouse or friends.
 
Mind Your Manners. Workaholics often exhibit signs of impatience and anger when things don’t get done right or quickly. Self-monitoring of behavior often triggers a greater awareness of workaholism – and more cooperative relationships at work. Helpful hint: Keep a list of five “anger comments” on your desk. Whenever you feel impatient or upset, glance at the list and stop the disruptive behavior.
 
Savor the Process. Workaholics are often content only when they finish things. Tomorrow, spend some time reflecting on the way you do things – the research you do, the people you meet, the tools you use – and enjoy the skills involved in making things happen. Helpful hint: Take two or three minutes toward the start of any task and enumerate the things you like most about it.
 
Look to Others. As hard as it may seem at first, pass some important tasks and responsibilities to others. Helpful hint: On a big project, delegate tasks to others. Check in at infrequent intervals.
 
Say “No.” Decline requests that don’t fit your priorities. Helpful hint: Estimate the time needed to complete current and upcoming tasks. Once you’re at 110 percent of your available time, say no to new requests.
 
Think of Others. Research says workaholism can harm family life. Helpful hint: Keep family photos near your workspace. When you feel overwork or pressure, glance at the photos and remember your highest priorities in life. – Marisa Palmieri

In the News: Warming Temperatures Have Mixed Outcomes

Rising temperatures caused by global warming mean longer growing seasons for plants – and pests. While palm trees grow in Tennessee and subtropical camellias in Pennsylvania, poison ivy is more toxic than ever before and the invasive kudzu vine is making its way north.

Tara Dillard a Stone Mountain, Ga. landscape designer, started noticing these changes three years ago. “They are no accident,” she says. “They align with permanent water restrictions, which are part of global warming.”
 
While some contractors see this as positive – hardier plants make for more work – experts say it’s not that cut and dry. Research from the National Oceanic and Atmospheric Administration indicates that many areas of the country are one or two zones warmer than they were in 1990. For example, northern Georgia has changed from zone 7 to zone 8, meaning the average low temperature has increased from zero to 10 to 10 to 20 degrees Fahrenheit. 
 
And, according to “The Gardener’s Guide to Global Warming,” as a result of increasing temperatures, the climate will no longer be favorable for the official state tree or flower in 28 states by the end of the century. 
 
Some experts say global warming is helping to create awareness among contractors. Southern states, for instance, are embracing drought-tolerant landscapes. Dillard now urges designers to think outside the box when choosing plants for their clients’ landscapes. – Emily Mullins