Larry Brinkley got the phone call a lot of contractors have feared in the last 12 months. He was told that his company, BLT Landscape Services, Dallas, Texas, was losing the maintenance contract for a local hotel property that was part of a national chain despite the fact that the local property manager told him his company had done a good job for the hotel.
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Concerns about experiencing a similar loss of contracts have been voiced by other contractors ever since the industry changed forever over Valentine’s Day weekend in 1998 when LandCare USA, Houston, Texas, and TruGreen-ChemLawn, Memphis, Tenn., both announced plans to develop national landscape contracting companies via aggressive acquisition plans to be financed with public stock.
As part of their recruiting pitch, representatives of both companies have clearly identified commercial maintenance contracts that are part of national accounts as desirable contracts.
At the same time, these organizations have spoken about the economies of scale and sharing of best practices that should enable them to be cost competitive as they move into new markets.
Much of the industry’s immediate reaction to the developments of these companies was filled with concern for their own future. Over the course of the last year, many companies have examined the situation and come to the conclusion that joining one of these national companies was their best option.
As has been observed repeatedly in the time since that weekend, words such as “fragmented” and “mom and pop” have long been appropriate descriptions for this industry. Those are exactly the characteristics multi-million dollar organizations desire when targeting new industries to consolidate.
As a result, terms like “asset sale” and “EBITDA” have become almost as common as zero-turn and herbicide.
As of presstime, LandCare USA had acquired approximately $240 million of companies via 25 acquisitions. TruGreen-ChemLawn, meanwhile, added $160 million to its nearly $1 billion in lawn care revenues through 17 acquisitions of its own. And the two organizations plan to join forces under the ServiceMaster umbrella (TruGreen-ChemLawn’s parent company) late this month in a stock-for-stock deal.
But now that the dust has settled from last February and a clearer picture of the future is evolving, what does the future hold for the independent owner/operator?
FRONT-LINE PERSPECTIVE. Few contractors are in better position to gauge the effects of consolidation thus far than those located in some of the markets targeted by TruGreen-ChemLawn and LandCaure USA to date.
“Right now, we’re just trying to figure out what sort of work they’ll be going after,” noted Kim Phillips, president, Phillips Landscape, Atlanta, Ga. “Will TruGreen-ChemLawn or LandCare knock on all of our customers’ doors? And how much construction are they going to do down here, because they keep talking about maintenance but they’ve acquired some significant construction companies in this area.”
“It’s still pretty early in the game,” added John Gachina, owner, Gachina Landscape Management, Menlo Park, Calif. “We’re going to watch how these companies position themselves in our market and then we’ll take our position.”
While other contractors voiced similar ‘wait-and-see’ attitudes, some companies noted they have already altered their approach or the way they market their services.
“If you’re a company doing these high-profile accounts that will be targeted by a TruGreen-ChemLawn or LandCare USA, you’re probably going to be facing a different type of competition because of the numbers they have put together,” observed Brinkley. “They will be able to reduce their rates and, in most cases, undercut those of us handling the contracts now.
“So we changed gears and decided to go after the more local, commercial businesses that are not national in nature,” Brinkley continued.
Brinkley also noted a new emphasis in his company’s marketing approach.
“In our advertising and communication with clients, we stress that we still provide personal, hands-on business and the key people in our company personally review accounts to make sure work is done properly,” he noted. “It’s much more difficult for a national company to do this and provide the personal touch we can provide.”
Other contractors are preparing themselves to actually grow their business and acquire new contracts thanks to LandCare and TruGreen-ChemLawn.
“These new companies have to gain market share, and one way to do that is through pricing,” recognized Gachina. “But I think they’re also going to lose work that I can go after while they’re feeling their way through the assimilation of all of these different groups into one company.”
“I think we’re going to see a lot of situations where the guy who has been making a company tick for and focus on customer service will soon retire after selling, and that will change everything for that operation,” noted Jonathan Bartels, president, Northwestern Landscape Company, Puyallup, Wash.
Phillips agreed that his company is prepared to succeed no matter who it competes against.
“We’ve been competing with Valley Crest since before the Olympics were held in Atlanta in 1996, and that company is every bit as big as anyone else and better oiled in terms of its operations than these new companies can be,” he noted. “But instead of waiting for them to go after our clients, we’ll keep going at the pace we’re going at and we’ll meet them head on.
| GrowScapes |
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HOUSTON, Texas – In the aftermath of the announcement of the TruGreen-ChemLawn/LandCare USA merger, many contractors had a new concern – what would the lack of an acquisition competitor for TruGreen-ChemLawn do to the skyrocketing value of companies? While a legitimate concern, it may prove a bit premature, based on comments individuals involved in the formation of a new organization focused on consolidating landscape companies and nurseries – GrowScapes. GrowScapes plans to announce its first acquisitions in the coming weeks, with current expectations for a group including approximately 12 companies totaling more than $70 million in annual revenues. “We expect to be the fifth largest player in the market right out of the gate,” confirmed Chris DeClaire of GrowScapes. The key to GrowScapes’ consolidation plan is what it terms a vertical integration strategy that will include nursery growers and suppliers. Information presented on GrowScapes’ website identifies the company’s strategy as thus: “We believe that this is the future trend of the industry. Many of the largest landscape contractors are already vertically integrated. Vertical integration helps nursery and maintenance companies by associating with a ‘gate keeper’ that can help them sell their services while they continue to sell to outside customers to maintain a strong, aggressive organization.” “I know the buyer on the other side likes bundled services and simpler decisions that limit the number of vendors he has to deal with,” DeClaire noted. – Bob West |
MURDY’S THOUGHTS. Although the past 12 months haven’t gone as well as he had hoped, LandCare USA President and Chief Executive Officer Bill Murdy certainly deemed their efforts thus far successful.
“I think our progress thus far has met most of our expectations in terms of being able to expand geographically and creating a high-quality company,” Murdy observed. “The only thing that didn’t hold up to our expectations was the acceptance by the stock market of the consolidation concept, but that was more a result of the market turning negative on the concept in general as opposed to a reflection on our performance.”
Murdy said the upcoming alliance with TruGreen-ChemLawn positions LandCare USA for continued growth.
“Our stock price would not have allowed us to grow like we can grow both internally via acquisitions as part of ServiceMaster,” he noted.
Murdy also voiced the opinion that consolidation has only begun in the industry.
“We’re basically in a service business, and we’ve got to follow what the customer wants,” he said. “If the customer is consolidating, then it follows that you probably want to consolidate as well to be able to continue servicing them.”
While it’s still too early to gauge success, Murdy said LandCare’s sales message to national and regional accounts has been well received thus far.
“Our national sales program is really in its nascent form right now,” Murdy explained. “But I think sooner rather than later you will see property managers have a list of preferred service providers, and we hope to be No. 1 on that list.”
Murdy made a point of refuting claims that LandCare USA will engage in the price slashing tactics feared by many contractors.
“A contractor asked me if we were going to come into their town, set up an office, cut prices and take their customers,” he related. “But that indicates a fundamental misunderstanding of what we’re doing.
“We don’t come into a town – we set up around a company that is there who has the relationships in the market and that we can make better,” Murdy continued. “There is going to be some real threat because we are going to go after some contracts hard and we are going to be able to charge less than some companies, but people should not confuse us with Sherman on his march to the sea. We would cannibalize our own future if we weren’t achieving the desired profits.”
Murdy also noted that while acquisitions in the Midwest part of the country will become more common in the future, not all markets are being targeted.
“We want to be in the major markets that make the most sense,” he commented, “but I think there is plenty of room in this business for small, niche players, especially in the secondary and tertiary markets.
LOOKING FORWARD. Although no one can be certain, the next 12 months will most certainly feature a continual stream of acquisitions and mergers.
“I really thought we would see more consolidators like us in San Francisco in January (at the Lawn Care & Landscape Industry Merger & Acquisition Institute),” recalled Chris DeClaire of GrowScapes, Houston, Texas (see sidebar, page 58). “I think we’re going to see more consolidations taking place and we’ll see more consolidating groups entering the industry because groups like GrowScapes and LandCare will raise awareness levels of this industry.”
Some contractors have also seen the first signs of possible local or regional consolidation efforts in their own markets.
“I have heard some talk of smaller companies joining forces to see what they can do to compete in the future,” added Brinkley.
“We’re talking to our competitors more about what’s going on in the market and where everyone is going with their businesses,” agreed Bill Roy, operations manager, Hawkins Nursery & Landscape, Dallas, Texas.
Other new companies could result from spinoff organizations that develop when the upper level management of a company that is sold elect to form their own organization.
“Instead of competing against one TruGreen-ChemLawn, I’m more concerned about having to deal with three or four spinoffs,” added Phillips, who said he has observed some of that taking place already in the Atlanta market.
“I think there will be more local and regional companies getting together to form something like a $60-million landscape company in a concentrated area,” predicted DeClaire. “If companies want to be able to compete on these commercial contracts, they’re going to have to band together and achieve more critical mass to do so.”
Another variable for contractors to keep an eye on is the changes in the value of a successful landscape company for sale.
“I’m very happy that now there is a market for me to sell my business,” observed Bartels.
While such a market has existed over the past 12 months, it’s unlikely that businesses will be valued as high now that so many millions of dollars have already been spent and contracts acquired.
“I’ve got some concerns as to what the TruGreen-ChemLawn/LandCare deal will do to the pricing structure for acquiring companies,” noted Brinkley. “The acquisition market could get so saturated with companies for sale or a lack of buying interest that those of us who still own our companies are left hanging at some point down the road.”
But the contractors watching this process take place in their own markets are holding strong to the value of providing clients with a quality service as the key to their success.
“If you take care of your clients, who are the people you’ve built your business on, then consolidation won’t affect you,” Roy concluded.
The author is Editor of Lawn & Landscape magazine.
