Private Equity in Landscaping – What Does it Mean For You?

There is a resurgence of private equity investing in landscaping firms—this will impact everyone.

The large amount of money flowing into investments and the financial markets is making itself felt in the green industry.

My best residential landscape clients are also being propositioned. Which says a lot about how well they have performed, and it shows that a rising tide raises all boats – commercial as well as residential and also installation.

Buying or Selling?

This begs the question, is it time for you to sell? Or perhaps, you now should be buying?

The value of your landscape (or lawn or irrigation) business is based on your cash flow over a consistent period (earnings before depreciation, interest, etc.), and it is impacted by the inherent risks in your business.

The higher the risk, the lower the value.

Risk comes in many flavors, for example:

• Amount of install work
• Owner and key employee dependency
• Client dependency (does revenue depend on too few clients)

…and up until recently, the risk was based on having non-commercial work, but that is changing albeit slowly.

The real secret to building value is by building the size of your business in a sustainable way. The larger the business platform, the more the business is worth, all other things being equal.

Companies with revenue of a million are worth less than firms with revenue of 5-10M, which are worth less than 20M companies, which are worth less than 100M companies.

So Why All the Buying? 

Our industry is fragmented, which means these investors can come in and build up a platform by buying smaller companies. 

Caveat: Private equity (private investors) know how to assess risk better than anyone!

Their success stems from turning down bad deals and only funding the truly good deals. Just because they approach you doesn’t mean you are a good deal.

Private equity managers also know how to measure results and set growth goals. Remember, they want to grow the size of their platform.

What’s their ultimate goal? Some will hold, and many will sell their rolled-up company to a larger investor, who in turn will want to do the same (grow it and sell it) until an investor decides they want to take the company public to cash out…though that did not work out so well for people who bought Bright View stock.

Who is Buying and Who is Selling?

Here are 3 examples. I have been lucky to have coached and known some of the savviest landscape entrepreneurs in our industry:

George Tucker, owner of LanDesign in St Louis, and host of my upcoming Summer Growth Summit, has been growing his firm dramatically through organic growth and acquisition. Right now, he is buying and growing organically very fast from 5 to 10 to 17M, on his way to 30M.

Kurt Bland, CEO of Bland Landscaping, was selling, and now he is buying. What I mean is he recapitalized his firm with outside investors, and now he is looking at other possible companies to acquire. He understands both sides and how to simply grow organically into a valuable business. He is a guest speaking at our summit.

Todd Pugh, CEO of Enviroscapes, Louisville, OH, is not buying or selling. He is adding on branches and expanding his business in a savvy fashion. He will be the third main guest speaker at our summit. He has some very good insights on recruiting and culture as well.

Your Challenge – Figure out what your succession will look like, even if it is far away. 

Whether you plan to have your family take it over, or your employees, or sell, you must get your business ready for maximizing its value and ease of succession.

Focus on the fundamentals. Figure out your accounting and financial management, hiring strategies, sales system, leadership team, etc. Build your own platform now!

You must also establish what you personally want to do after the sale. This is ironically the hardest part of selling – letting go and reinventing yourself.

You must also make a financial plan because the money you gain from a sale must be invested. Your return-on-investment in the stock market will be far less than your return on investment will (or should) be in your landscape business, so you need to decide “what’s next”?

Whether you are selling, buying, or simply organically growing, come join us Aug 30th-Sept 1 in St. Louis for the Summer Growth Summit, and learn from the smartest people in the industry. This event is not to be missed!