Inside Mergers & Acquisitions and What It Means for the Industry - The Edge from the National Association of Landscape Professionals

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Inside Mergers & Acquisitions and What It Means for the Industry

At times, it can seem the industry trade press is reporting about another lawn care or landscape company being acquired on a monthly or even weekly basis. While the frequency of these acquisitions can make it feel like soon there be just a handful of larger landscape companies, the fragmentation of the industry prevents this from becoming a reality. However, there is no doubt it is becoming a much more common occurrence and can be a viable growth strategy for businesses with the right pieces in place.

What Companies Are Looking For

There are a number of reasons why landscape companies might opt to acquire another business. Some could be wanting to build out different service lines or serve a new geography without having to start from scratch. Acquisitions provide an opportunity to scale quickly.

“It represents an opportunity to acquire an established book of business and customer relationships that can be more time-efficient than acquiring customers organically,” says James Higgins, partner at Chenmark, a diversified holding company based in Portland, Maine.

Chenmark has acquired landscaping companies such as Seabreeze Property Services, LLC and Piscataqua Landscaping & Tree Service.

Austin Ashmore, CEO of Sunrise Landscape, based in Tampa, Florida, says it isn’t a choice of either growing organically or inorganically. They opt to focus on a mixture of the two.

“It’s taken us a long time and a lot of effort to build this infrastructure and that infrastructure is also transferable to other markets, other businesses, and I think there are opportunities to have one plus one equal more than two, so to speak,” Ashmore says.

For Landscape Workshop based in Birmingham, Alabama, they are focused on acquiring businesses that have the right customers and the right people. They prefer companies with commercial maintenance accounts.

“The fundamental things that we value are first a good book of contractual maintenance customers, second the talent and then third, we’re going to get some vehicles and equipment,” says J.T. Price, CEO of Landscape Workshop.

Similarly, Greg Harbison, president and COO of Sperber Landscape Companies, based in Calabasas, California, says they look for well-positioned companies that put their people and customers first and know how to run a smart business. Sperber has acquired companies such as Kujawa Enterprises, Cagwin & Dorward and Bemus Landscape.

“We also want to make sure that they’re in growth markets where there’s a runway for us to continue to grow the business,” Harbison says. “That fits into our strategy of being a growing company and keeps our commitment to our people that they can develop a career with us across their professional lifetime right here at Sperber.”

Some companies look to do tuck-in acquisitions where the companies they acquire are integrated into their organization, and others like Chenmark and Sperber do a mixture of tuck-ins and platform acquisitions. Platform companies maintain their name, branding and legacy.

“Part of our strategy is to retain these companies’ legacy brands which over decades they have built great reputations and recognition in the markets they serve,” Harbison says. “There’s no advantage to us changing the name, in fact, that’s a disadvantage. It strips away their heritage and legacy, which we feel like those two things are really important to have intact both for our local teams and the customers we serve.”

Higgins says the geography, business model and company size will help determine if an acquisition should become a platform or tuck-in. For tuck-ins, they evaluate the footprint of the business, and how the revenue stream, employees, and customer relationships mesh with their existing operation program.

“If it’s a new acquisition in a different place or different subsidiary, that becomes much more important because you’re relying on the existing infrastructure to run the business going forward,” Higgins says.

Involvement from Private Equity Firms

Not only are other landscape companies looking to buy their competitors, but a number of private equity firms are looking to get in the landscape industry as well. Tom Fochtman, CEO of Ceibass Venture Partners based in Arvada, Colorado, says there are a ton of investors looking for somewhere to place their money. He says there’s never been a better time to be a seller of a landscape company.

“The green industry has been more and more discovered as a very good business model, particularly commercial landscape maintenance,” Fochtman says. “Residential has been lagging because I think most buyers prefer a B2B model.”

However, private equity firms are often focused on higher revenue businesses compared to what other landscaping companies are looking to buy.

“When it gets to private equity, if they want to enter to the landscape business they want to have ideally a $15 to $20 million in revenue platform to start with,” Fochtman says.

Often the private equity model is to acquire a landscape company, grow the business and then sell it for a higher EBITDA multiple later on. Fochtman says they’ll typically keep a company for three to five years, but they can own them for longer before selling.

The involvement of private equity firms is seen as a positive as their interest shows the industry is stable and highly desirable with its strong recurring revenue.

“I would say they are probably raising the bar for the degree of certain financial analysis happening in the industry,” Higgins says. “I think that is going to raise all boats to a degree.”

Sunrise Landscape has some private equity investment and Landscape Workshop sold their business to a private equity firm a year ago. Price says the private equity investment has accelerated what they’re trying to do. Previously, Landscape Workshop was trying to do one or two add-on acquisitions a year until 2020. Now they like to do three to six acquisitions a year.

“I think it’s put a brighter spotlight on (the industry),” Fochtman says. “It gives sellers more opportunities. It creates competition amongst the buyers.”

The involvement of private equity firms has made landscape companies looking to buy find ways to differentiate themselves to sellers aside from price. Most buyers say they have had skirmishes, if not outright bidding wars with private equity firms.

“When we buy a company, we do so with the intention of owning that business essentially forever, and we’re under no obligation to resell that business in a few years to satisfy the needs and wants of a set of third party investors,” Higgins says.

Because Chenmark is set up to think about the business much more long term, this can be an attractive option to sellers.

Price says they try to let sellers know that they will be a good custodian of their business. Landscape Workshop is also attractive to sellers because they can execute the deals quickly and accurately.

Sperber hasn’t won all of their competitive bidding situations, but they are successful in most because the partners they work with feel like they won’t be a number and they are able to retain their legacy and culture.

“They feel comfortable with us as the steward of their business and their people,” Harbison says. “For people who really have that heart and soul for their business, the size of the check is always important, but it isn’t the most important thing. For them, it’s whether or not we’ll take care of their people.”

Recipe for Success

With mergers and acquisitions being so popular, you might assume it’s easy but it requires having the right elements in place first, like strong internal and external teams including lawyers and accountants.

You also need to know what works for you and why acquisitions are supportive of your strategic goals.
“You need to have sound reasons as to why you’re doing it,” Fochtman says. “Assuming you do, you want to make sure this company you buy fits your culture, because if it doesn’t fit it doesn’t matter how good they are. If they’re not going to fit in, it’s just not going to work.”

Ashmore says his key to success is leading with integrity. If both parties are truthful and honest through the process, the acquisition is going to be successful.

“My advice would be don’t tread lightly into this,” Ashmore says. “You’re dealing with someone’s legacy and they care a lot about it. I don’t think it’s for the faint of heart.”

Higgins adds that your ability to evaluate the potential of an acquisition is based on your ability to evaluate your own business.

“Until you have an established framework that you trust for basically watching your own game tape, so to speak, you probably shouldn’t be watching others’ game tape and trying to figure out what that’s worth,” Higgins says.

Higgins says you need a strong understanding from all parties about the roles and responsibilities post-closing so everyone is on the same page.

“It’s not that difficult to buy a business but what is difficult is to buy a business and integrate it well,” Ashmore says.

Harbison says they want everyone to feel like it’s been the same as before and they aren’t trying to change things up on day one after the acquisition. He says it takes 90 days to six months for employees to settle in and realize they’re all on the same team and life is good.

“The last thing we want to do is go in there and tell them they don’t know how to run a great business, that’s why we were interested in forming a partnership in the first place,” Harbison says. “Post-close, we want life to feel very normal. Our job is to help each company continue to build a great local legacy while collectively we build a national company we can all be proud of.”

Price says it’s critical to have a good communication strategy.

“We want as quickly as possible to remove any uncertainty from the employees’ lives,” Price says. “People do not like change; they do not like uncertainty. And the quicker I can say, ‘Hey, you are doing the exact same job you were a week ago, except you probably have a little bit better benefits package and their uniforms are green instead of whatever color they used to be.’”

Searching for Sellers

Despite the size of the company, mergers and acquisitions all require the same amount of effort so make sure the businesses you are pursuing are worth it.

Landscape Workshop’s sweet spot is companies in the $1 to $10 million range.

“Frankly a lot of the companies we buy aren’t big enough to attract the attention of a really good investment banker,” Price says.

Sperber looks at companies from $10 million to $50 million as platform companies and any businesses smaller than that they will consider for a tuck-in acquisition. Harbison says a good company worth acquiring has great leadership, takes care of their people and takes care of their customers.

Ashmore says they don’t have a minimum or maximum size they’re looking for. He says they focus on the company’s culture, which is often overlooked.

“Culture can’t be talked about in the abstract because culture itself leads to those things that we’re looking for,” Ashmore says. “If you have a bad culture, you’re going to have difficult employee turnover numbers. If you have difficult employee turnover, you’re going to have retention problems on the customer base and if you have retention problems, and you’re going to have profitability problems and all those things, which would then inherently make your business less attractive.”

If you want to acquire some businesses, don’t feel like you are limited to only considering the ones with ‘for sale’ signs. All four companies say they will reach out to businesses that aren’t looking to sell at the moment.

Two-thirds of Landscape Workshop’s acquisitions stemmed from them reaching out to businesses that weren’t for sale. They focus on companies in geographies that make sense to them that have good reputations.

“It’s not for us to try to anticipate the owner’s motivation or lack thereof to sell,” Price says. “We’re reaching out.”

Price says they’ll reach out to companies and have a couple of conversations and then let them know what they think the company is worth. If it doesn’t work for the company they’re interested in, they’ll still stay in touch. He says many of the acquisitions occur two to three years after reaching out to an owner.

“We have a very long-term view of this,” Price says. “If somebody is not ready to sell now, but they’re ready in three years, we’re going to be here in three years looking to buy the business.”

Similarly, Higgins says they like to learn more about businesses and cultivate a relationship first.

“For that side of it, what we’re really trying to do is essentially network so it’s less about, ‘Hey, I got a check who wants it’ kind of thing, and more, ‘Hey, we’re in a similar industry,’” Higgins says. “‘It would be great to just talk about what’s going on in your business. We can share a little bit a little bit about what’s going on in ours.’”

Advice for Sellers

While selling is a viable option for owners who are looking to retire and don’t have a succession plan, you don’t have to fall into this category to consider selling.

Price says in recent years he’s seen more folks who are not at retirement age selling the business because it’s getting harder to run the company. Occasionally they’ll have some sellers who want to join the Landscape Workshop team. Harbison says half of Sperber’s current partnerships have been from companies that approached them specifically.

“I think the reason that they want to come with us is one they understand that we’re landscapers, we’re invested in the industry, it means something to us to be in this space,” Harbison says. “Two, our culture and our core values align with their core values.”

If you are considering selling, make sure you’re really comfortable with who you’re selling the business to. Have conversations with others who have sold their companies and make sure you have a strong middle management team in place if you don’t plan to stay on.

Ashmore advises being honest as the quickest thing that can kill a deal is when something is misrepresented or someone isn’t entirely truthful as it damages their credibility.

“I think there’s a lot of temptation to shine things up or puff your chest out or those types of things, but we’ve been around long enough that we see through most of that,” Ashmore says.

Fochtman encourages investing in your people and working to not just be a good company, but best in class in your market.

“If you’re good, you’ll get a good multiple, if you’re best of class, you’ll get a great multiple,” Fochtman says.

This article was published in the March/April issue of the magazine. To read more stories from The Edge magazine, click here to subscribe to the digital edition.

Jill Odom

Jill Odom is the senior content manager for NALP.