Historically, the lawn care (fertilization and weed control) sector has been one of the most robust areas of the green industry when it comes to mergers & acquisitions. The market has evolved a good bit in the last few years and I thought it would make sense to summarize the market as we see it.
Over the last ten years, the lawn care M&A market has been dominated by major players. TruGreen has been the dominant national player through this period. Until a few years ago, even relatively small lawn care companies could often receive an offer from TruGreen and a competitive offer from Scotts LawnService.
That began to change when Scotts stepped back from active acquisition activity other than a handful of g=franchise transactions. Then TruGreen had some well-publicized service delivery and profitability issues that ultimately resulted in new leadership, a spin-off from ServiceMaster, a renewed focus on the basics and then, last year, the merger with Scotts Lawn Service.
TruGreen did no acquisitions in 2014 and a handful of acquisitions in 2015. The expectation had been that TruGreen would return to an aggressive acquisition program in 2016. Instead, they acquired the former Scotts LawnService from Scotts MiracleGro. That was a very large acquisition and was very complex integration since Scotts had a large number of franchise locations in addition to corporate locations. TruGreen had a much larger corporate footprint but also has some franchises. Many territorial and operational issues had to be worked through and that was much of TruGreen’s focus in 2016. After the merger, there is a much larger gap between TruGreen as the industry leader and number two. In 2017, we have seen TruGreen make a few acquisitions of relatively large regional companies, such as Lawn Dawg in New England and New York and TurfMaster in Connecticut. We currently expect that TruGreen will continue to be very aggressive with acquisitions in 2018.
We have for some time expected that there would be another large player develop ion the industry. Ultimately, we think that is inevitable. There has been some notable activity, such as Colorado-based Swingle Tree acquiring Oklahoma-based LawnAmerica and other regional activity such as Senske Services’ multiple acquisitions. No really major player has developed thus far.
The closest thing to a new number two that has developed so far is SavATree/SavALawn. SavaTree has completed several acquisitions this year and itself was acquired by private equity firm CI Capital Partners a few months ago. We expect them to be a player in industry consolidation, but it is hard to predict exactly how that will play out.
So why hasn’t a new large lawn care company developed? Lawn care certainly seems like the kind of business that would attract large-scale private equity investment. It is primarily recurring revenue and potentially highly profitable. The industry includes many relatively small companies as potential acquisition targets. It would seem a prime candidate for investment.
Ultimately, the issue seems to be the availability of platform investments at a reasonable price that makes sense to investors. The typical price for a lawn care acquisition seems to have peaked when TruGreen and Scotts were both bidding on most every small acquisition that came along. Pricing has moderated some since those peak years. Most buyers in the marketplace have more discipline than they did a few years ago.
However, TruGreen continues to be an aggressive strategic buyer. The details of these transactions have not been announced, but iit seems to us that in the current market, an acquisition is just worth more, sometimes much more, to TruGreen as a strategic buyer than it is to a financial buyer such as a private equity firm. TruGreen has the benefit of synergies and increased route density with nearly every deal they do. That is hard for a financial buyer to match.
We can’t predict TruGreen’s future acquisition activity with any certainty. However, TruGreen has been private equity owned for an extended period and we expect that theiur primary private equity owner will be seeking an exit some time in the relatively near future. TruGreen was acquired by Clayton, Dubilier & Rice (CD&R) as a subsidiary of ServiceMaster. Since the TruGreen spin-off, CD&R has exited its investment in ServiceMaster, partly through an initial public offering. The most likely exit strategy for TruGreen would be an initial public offering or, perhaps, a sale to another private equity firm. With either if those possibilities in front of them, we would expect TruGreen to continue to be highly focused in growth. At their size, it seems like acquisitions will need to be a part of their strategy to sustain growth.
While we continue to believe that a new relatively large number two will develop, it may take longer than we had expected. What does that mean for lawn care business owners? Right now TruGreen remains the primary option for sellers. TruGreen is fairly regimented in their acquisition approach. While there are exceptions, they try to line up their next year’s acquisitions in the fall. Other major regional players will follow somewhat similar processes.
If a lawn care business owner is interested in selling a lawn care business in 2018, now is the time to start taking concrete action.