There is great demand among private equity firms for established roofing companies. If you are a roofing company owner, then you should consider a full or partial sale now more than ever before.
In this review, we discuss the current consolidation and acquisition trends in the roofing industry and how you (a roofing company owner) could benefit from consolidation.
Roofing Industry Acquisitions and Consolidation Explained
The roofing industry has become a primary target for many private equity (PE) firms. You may have noticed some of your competitors merging with private equity groups or larger roofing companies. In doing so, they are compensated (usually in the form of direct payment or company stock).
In many cases, the roofing company owner remains active with their company, but their job becomes much simpler and more profitable. For the private equity firm (or larger roofing company), they gain a percentage of the company and subsequently a percentage of the profits. When executed properly, this is a win-win for both sides.
HVAC Consolidation History (and Why It Is Relevant)
Much like the roofing industry, the HVAC industry is largely a fragmented market. we have seen rapid rates of consolidation in recent decades.
This first began in the late 1990s. Large companies such as Service Experts and Blue Dot (along with many others) began to merge with and acquire small and local HVAC contractors and companies. Some deals worked out well for both sides, whereas others did not.
In the past 10 years, private equity (PE) firms have consistently added HVAC/R professionals to their deal flow. They have been more successful than previous consolidators, targeting HVAC companies that have solid upper management, low ownership involvement, and where the business is bigger than the owner.
How Consolidation Works
For example, American Residential Services (ARS) began consolidating small, local HVAC companies. In total, they now have locations in 23 states and more than 6,500 employees. Since then, they have been acquired by a private equity firm, known as Charles Bank.
For established HVAC/R owners, consolidation has worked well as they are able to complete a partial or full sale for a high value and/or own a good chunk of stock in a highly profitable and stable corporation, while still maintaining as much control as they desire with their company.
Why HVAC Consolidation Trends are Important for Roofing Companies
So, why does this matter? Home services industries follow trends. A trend in one industry likely means the other industry will be impacted at a similar rate. In the case of consolidation, we are seeing similar trends in roofing as we have seen in HVAC/R in the past 10-20 years.
HVAC/R and roofing are large, local, and highly fragmented industries. Both are also recession-proof and pandemic-proof. There is also a need for consolidation within these two similar industries, particularly in the areas of marketing, operations, innovative service and product offerings, and HR.
As a result, private equity firms (and other consolidators) make perfect partners for local roofing companies who are looking to improve their business operations and sale their companies. There are also many roofing company owners who are reaching the age of retirement (baby boomers), which creates a market for consolidators.
Overall, consolidation represents an exciting financial opportunity for established roofing company owners who have been in business for a number of years and have a solid footprint within their communities.
Roofing Consolidation Trends Led by Private Equity
The same trends that have played out in the HVAC industry are playing out in the roofing industry. PE firms and large national roofing companies are acquiring small and mid-sized local roofing companies. This means if you are looking to exit your company, reduce your workload and stress, or simply improve the profitability of your roofing company while simultaneously reducing its overall risk, then roofing consolidation should be considered.
You can choose your transaction structure based on where you are in life. There are two primary options — full sale and partial sale. A full sale is done with the idea of exiting the company within a year after closing. A partial sale is a better option if you would like to keep some control of your company for the next three to five years (or longer).
Full Sale (3-12 Month Exit Strategy)
Roofing company owners who are nearing the age of retirement (or are ready to transition into other business ventures) can do so more effortlessly due to the current consolidation demand. Although private equity firms typically prefer owners to remain active for an extended period of time (see below), you can negotiate your exit according to your goals and needs. In the end, you can comfortably retire within 3 to 12 months.
Partial Sale (3-5 Year Exit Strategy)
Roofing company owners who are nearing the age of retirement (or are ready to transition into other business ventures) can do so more effortlessly due to the current consolidation demand. Although private equity firms typically prefer owners to remain active for an extended period of time (see below), you can negotiate your exit according to your goals and needs. In the end, you can comfortably retire within 3 to 12 months.
This is a best-of-both-worlds approach that allows you to stay involved as an owner and pull cash out. Consolidators allow you to step into a simpler ownership role (see the benefits of consolidation below). Moreover, a partial sale allows you to pull some cash out immediately, while still maintaining control over your company. You can stay involved as long as you want and can plan your full exit from the company when you feel the time is right to do so.
In fact, most private equity firms prefer to keep the original owner involved, especially if they have established strong relationships with people inside their local community. In this case, the owner may receive considerable compensation to sell their company partially, but they can also remain on salary as well. Your business broker negotiates the precise terms of the purchase and your involvement post-sale according to your needs, desires, and preferences.
How Roofing Company Owners Can Benefit From Roofing Consolidation
Roofing company owners can greatly benefit from roofing consolidation. However, it is important to work with a business broker who is experienced and proven with roofing industry acquisitions.
Here are four notable advantages of roofing consolidation for roofing company owners:
Enhanced Marketing Budget and Efforts
Consolidators such as private equity firms and national roofing companies, have expansive marketing budgets. Many local roofing professionals, on the other hand, have limited funds for marketing and primarily rely upon word-of-mouth to attract leads. The large budget consolidators bring to the table allows for more consistent and predictable cash flow for roofing professionals who choose to merge with a consolidator.
Increased Buying Power
Consolidators also provide more buying power for roofing professionals who choose to merge. This allows for increased profit margins. For instance, a roofing company owner who found it difficult to purchase materials in bulk due to cash limitations can now do so, greatly reducing material costs as a result. They may also have the capacity to hire more qualified roofing professionals, reducing the owner’s workload and involvement and increasing work efficiency.
Back Office and Technology Support
Many roofing consolidators have shared resources, streamlined administrative processes, and modern technological tools that might otherwise be financially difficult for individual roofing company owners to acquire. This allows for more efficient operations, optimized project management, enhanced customer relationship management (CRM), and access to data-driven insights.
Expanded Product and Service Lines
Roofing is more innovative than many realize, and roofing professionals must incorporate modernized products and services into the business model to keep up. From renewable energy integrations such as solar roofs to expanded roofing maintenance contracts, consolidation is a great way to expand product and service lines effectively and fast.
HR Assistance (Benefits, Recruiting, Training)
Through expanded resources and expertise, private equity firms and other consolidators can establish more robust HR departments that offer competitive benefits packages, streamline recruitment processes, and provide comprehensive training programs. This not only attracts top talent within the roofing industry but also ensures a skilled and motivated workforce.
Less Stressful Daily Operations and Talent Management
Managing workers and dealing with materials shortages lead to long, stressful days for many roofing owners. A partial or full acquisition of your roofing company provides a way to solve these issues. You now have a partner there to provide financial assistance, talent and salary management, and more. In other words, not only do you receive fair compensation for your roofing company, but your job is made much easier if you remain active with daily operations.
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Business Valuation from Brentwood Growth
Brentwood Growth helps roofing company owners sell for full value and according to the terms that are most important. Feel free to contact us today if you have any questions. We would also like to provide a no-cost, no-obligation business assessment so that you can make informed exit strategy decisions.