- The home and property services market presents considerable potential upside for investors due to positive consumer demographic trends and a highly fragmented provider market.
- Leading players in this segment have built strong brands and the infrastructure that enables them to scale and deliver consistently.
- Investors have several strategies for growth, including a focus on a specific service specialty or building a broad service portfolio that can meet most homeowners’ needs.
An Attractive and Strongly Growing Segment
The home and property services segment is large and diverse, including minor cleanup and handyman-type repairs, ongoing home and lawn maintenance services, larger-scale home-improvement projects, and remediation of damage from major disasters such as fires, floods, and storms. It is a space that is increasingly appealing to strategic buyers and financial investors for a number of reasons.
For starters, general demographic trends provide significant tailwinds for demand in this space and support its continued growth. Consumers today generally are less willing to spend their free time fixing things around the house and, with more discretionary income, are willing to pay someone else to do it. In some cases, younger consumers may lack the ability to do minor repairs and rely on those with the requisite expertise for help.
“There’s a general shift toward ‘do it for me’ and that shift only gets more pronounced and mainstream with each successive generation,” notes John Neuner, a managing director in the Harris Williams Consumer Group.
In other cases, what consumers need is simply too big to handle on their own—such as a major home remodeling or an emergency repair—and, thus, requires outside help. This is especially true for people in older homes that need significant updating—e.g., another bathroom, bigger kitchen, or more-open floorplan—to be more in tune with today’s lifestyles.
Additionally, the provider market is extremely fragmented, which presents an opportunity for consolidation. “Historically, this segment has been characterized by ‘mom-and-pop’ shops or ‘a man in a van,’” explains Brent Spiller, also a managing director in the Harris Williams Consumer Group. “These are very local providers doing good work, but it can be difficult for them to scale their business. That creates an opportunity to build a larger and more sophisticated operation that can distinguish itself from the mom-and-pop single operators.”
There are several ways to capitalize on this large and growing market. One is to start with the key player in a region and gradually add other companies, eventually building a true national player with scale. That could be done within a specific service specialty—HVAC, for instance—or more broadly, by offering many different but complementary services across the spectrum of what customers may need.
“Some players have been very successful taking in multiple brands across the service spectrum to ‘own the home,’” Spiller points out. “So, if they’re brought in for a specific need, they can easily expand their footprint in the home by tackling other areas of need for homeowners—whether it’s plumbing, HVAC, electrical, landscaping, cleaning, or other things that homeowners are unlikely to do themselves.”
Finally, the space continues to be resistant to disruptors such as Amazon. The high-touch service component that’s critical to success in the segment is incompatible with a model that emphasizes a high degree of automation and extreme efficiency.
“Amazon’s really good at taking a box off the shelf, putting it in another box, and shipping it to your house very quickly—with low personal engagement with customers,” Spiller observes. “It’s more difficult for Amazon to find a qualified person in a local market and track that person’s performance all the way through to your house for event-based or periodic needs requiring significant interaction with customers.”
What to Look for in the Space
As they consider potential targets in the home and property services segment, buyers should look for three key characteristics.
A strong brand
As is the case with most industries, consumers seeking home and property services are attracted to brands they can trust. So are other important influencers, such as insurance companies and tradespeople, who can be key sources of business referrals. Winning businesses in this segment are building national brands by serving customer needs consistently and effectively, and by leveraging digital sales and marketing tools to promote their track records and make themselves accessible to more customers.
“Brands are definitely more important than they’ve ever been in this segment,” notes Neuner. “Companies need to be able to demonstrate—through such things as their net promoter score, customer satisfaction, and reviews—that they are the best of the best.”
To be sure, because of the preponderance of smaller, mom-and-pop operators in this space, the landscape of national brands can vary by segment or service line. But the market’s fragmentation and sheer size create considerable potential across the segment to establish a strong brand name for a platform.
Infrastructure to scale and deliver consistently
Given the historical fragmentation that has characterized this segment, scale is arguably the single-biggest differentiator for leading companies. Building the infrastructure necessary to create a national footprint that can handle more customers and address more customer needs—and do so consistently—is critical to continued growth.
This infrastructure enables leading companies in this segment to deliver a superior experience, day in and day out, for every customer, whether it is via the website, in the call center, or on-site. They recognize they must be able to answer every customer’s phone call or online query and help them at their time of need. That is not something smaller operators can do.
“Many consumers have their ‘guys’—the electrical guy or the plumbing guy—who may have done a good job for them in the past and may be the first consumers go to as long as they can take that phone call,” says Spiller. “But a lot of these smaller operators are out on jobs and can’t answer the phone, so the call goes to voicemail. And that’s not going to cut it for a customer who lost part of his roof and is watching it rain inside the house. Consumers want someone to respond to their need ASAP.”
Consistency of experience also extends to performance on-site at a customer’s home and the quality of work delivered. “At the end of the day, in this business, you’re going into the place where consumers are most vulnerable: their house,” Neuner notes. “They’re hypersensitive to when somebody walks into their house and to what they’re doing. Leaders have the scale—the systems, processes, facilities, and training—to consistently deliver great service across hundreds of thousands of jobs on any given day, and it feels the same to the consumer from one end of the country to the other.”
A steady source of revenue
Finally, an attractive target offers services that meet nondiscretionary or recurring or pervasive needs and, thus, generate a consistent, predictable revenue stream.
“This could mean providing ongoing lawn-care and landscaping services, conducting regular maintenance on HVAC equipment, or fixing damage from common events such as storms or broken water pipes,” says Spiller.
Deal Spotlights: Neighborly, Authority Brands, HFC, and SERVPRO
Four companies Harris Williams has worked with recently embody the positive aspects of the home and property services segment, and illustrate what makes for an attractive target for buyers. Three of these companies take a broader view of the market, while the fourth has built a leading business by focusing on an important niche.
Neighborly is one of the world’s largest parent companies of trade service brands, with nearly 3,700 franchisees and $1.7 billion in system-wide sales across nine countries. Following its sale by The Riverside Company to Harvest Partners, the company united its 22 brands under the Neighborly banner, which is fast becoming a household name.
The company, which began in 1981 with a single brand, now offers a broad spectrum of repair, maintenance, and enhancement services that typical homeowners might need at any given time. These include HVAC, plumbing, glass repair and replacement, appliance repair, landscaping, restoration, painting, electrical repair, landscaping and lawn care, handyman work, and residential cleaning. Many of the brands under the Neighborly umbrella are already well known to homeowners: Mr. Rooter, Molly Maid, and Glass Doctor, to name a few.
In addition to meeting a mix of nondiscretionary and recurring needs (and, thus, creating a diversified revenue stream), this broad portfolio of services provides numerous cross-selling opportunities. For example, Neighborly works closely with its franchisees on integrated marketing campaigns that encourage customers of one service to try another Neighborly offering, and that educate customers about all the services Neighborly provides. It also runs an online home services platform through which consumers can find Neighborly home service professionals in their area, sign up for seasonal reminders, and schedule service visits.
Building a bridge across its many brands has the potential to drive considerable growth. Despite Neighborly’s nearly $2 billion in sales, most of the company’s customers use just one or two of the company’s brands. “Even if it moves that needle only slightly, Neighborly can begin to tap into the true power of this multiservice platform and create a very meaningful and measurable impact on revenue,” notes Neuner. “And it will enable Neighborly to truly ‘own the home.’”
Similar to Neighborly, Authority Brands is the parent company of seven leading home services franchisors: America’s Swimming Pool Company, Benjamin Franklin Plumbing, The Cleaning Authority, Homewatch CareGivers, Mister Sparky, Mosquito Squad, and One Hour Heating and Air Conditioning. Together, these brands provide home services through nearly 1,700 locations operated by nearly 1,000 franchise owners in the U.S., Canada, Latin America, Kenya, and Indonesia.
Harris Williams recently advised Authority Brands on its sale to Apax Funds, which was attracted to the opportunity to build a multi-brand home services platform. At the time of the sale, Authority Brands’ portfolio consisted of only two companies, to which Apax added five more leading brands in a span of only nine months.
“Investors that considered Authority Brands were attracted by the same sort of opportunities that Neighborly presented,” says Spiller. “They saw the potential to start with a strong base of a handful of brands and eventually build on those to create a more powerful multiservice vertical that can address the spectrum of homeowners’ needs—ultimately creating a strong revenue stream driven by a mix of nondiscretionary and recurring discretionary purchases.”
Home Franchise Concepts
A third company that illustrates the potential for investors in this space is Home Franchise Concepts (HFC). Like Neighborly and Authority Brands, HFC is a multiservice platform that serves a variety of home and property needs. It’s one of the world’s largest franchising systems in the home improvement goods and services space, among the world’s largest franchise businesses, and a recognized leader in franchisee-franchisor relationships.
HFC’s four franchised brands—Budget Blinds, Tailored Living, Concrete Craft, and AdvantaClean—are consistently rated at the top of their categories and supported by nearly 1,700 franchise territories in the U.S., Canada and Mexico. The platform’s performance and potential drew the attention of JM Family Enterprises, which purchased HFC in 2019.
What makes HFC special? For starters, its strong, stable platform provides services that hit a true sweet spot in the market. “At a high level, HFC provides services that could be described as ‘home improvement,’” observes Spiller. “And there’s a lot of demand for that because of the current trend of people wanting to spend more time in their homes, and to make their homes more inviting and a place to entertain. Combined, these services also form a solid foundation on which HFC can build a larger, more broadly focused home and property services business.”
Perhaps most important, HFC’s services create an environment in which HFC can build a relationship and trust with homeowners that can lead to strong cross-selling opportunities. For example, a purchase of blinds from Budget Blinds typically involves multiple interactions between homeowner and brand—consulting on design, talking through budgets, custom-measuring the windows, installing the blinds, and following up after the blinds are hung.
“The rapport built during this time makes it easier for HFC to talk with the homeowner about other needs—such as home storage and organization or a new concrete patio or sidewalk—that require a similar consultative approach to devising a solution,” notes Spiller. “This, in turn, helps build stickiness in the relationship and enables HFC to continue to build on the homeowner’s positive experience with the company.”
While the preceding three companies offer a broad set of home and property services, SERVPRO’s focus is more targeted. Founded in 1967 and recently recapitalized by The Blackstone Group, the company is a leading provider of fire and water cleanup and restoration services, and mold mitigation and remediation. SERVPRO’s professional services network of more than 1,700 individually owned and operated franchises responds to property damage emergencies ranging from small individual disasters to multimillion-dollar large-loss events.
SERVPRO meets an urgent, immediate, and recurring need: disaster recovery. As anyone who has experienced an emergency at home knows, time is of the essence—putting off calling for help is simply not an option. “If there’s a flood, fire or storm, it’s all about remediation—I want to get someone here as quickly as I can,” says Spiller. “If you don’t take care of it fairly immediately, it can become an even bigger problem.”
Yet SERVPRO’s demand is not only nondiscretionary, but also recurring—typically not from the same customer, but from the broader population of homeowners, some proportion of which will experience damage from forces out of their control every year. This is a unique combination that results in a steady stream of revenue regardless of economic cycle.
SERVPRO also has a national scale and robust brand. As mentioned earlier, the home and property services segment features many small, mostly local players that can take on only so much work at one time and typically can’t handle projects involving significant damage. SERVPRO has built one of the few truly national providers with the scale to respond quickly and consistently to emergencies, regardless of how big and where they are.
Along with this scale comes sophistication in capabilities—technologies, people, locations and infrastructure—that enable SERVPRO to out-hustle and out-market their smaller, geographically focused competitors, and help create a well-known brand and consistently positive customer experience.
The national scale and brand SERVPRO has built, combined with the company’s strong, local “boots on the ground” presence, resonate strongly with a wide range of important stakeholders, including insurers, consumers, and referring tradespeople, driving a steady stream of business to SERVPRO in times of need.
Neuner sums up the positive dynamics surrounding SERVPRO in this way: “You have a service that you really can’t defer, customers who are just focused on getting their houses repaired as quickly as possible, and insurance companies footing the bill that want the situation resolved quickly, efficiently, and cost-effectively,” he says. “And you have a provider, SERVPRO, with national scale, a strong national brand that’s trusted by key potential influencers, sophisticated capabilities, and a proven track record of consistently meeting customers’ needs—all in an industry where such things are pretty rare. SERVPRO is a leader in the industry, but even so, there’s still a lot of opportunity for the company ahead of it.”
With favorable trends driving strong tailwinds, the home and property services segment looks to remain a good play for buyers for the foreseeable future. The fragmented market continues to offer plenty of opportunities to build a strong platform of brands that can meet the wide range of needs that homeowners increasingly are willing to pay others to address—making it a one-stop shop that homeowners come back to again and again.
Published September 2019