Why Home Service Brands Are Hot Commodities
Scott Abbott started Five Star Painting in 2004, when he was 18, and sold it in 2015 to Neighborly, when it became the eighth brand under the home service franchisor’s umbrella. Today, Neighborly is owned by mega-private equity firm KKR and has 29 home service brands and more than 4,800 franchises in nine countries.
And Abbott himself, now 46, launched in November his own portfolio company, Five Star Franchising, after attracting Princeton Equity Group as an investor and purchasing Joe Homebuyer, Gotcha Covered and Bio-One. Five Star Franchising’s brands include nearly 300 franchise owners and 350 territories across the U.S. and Canada.
Yep, investors are hot for the once-lonely home service sector. (See sidebar for six recent deals that illustrate the trend.)
Reason No. 1: “Neighborly kind of pioneered this idea of rolling out brands in a platform. They didn’t get nearly the valuations 15 years ago, 20 years ago,” Abbott said. In July 2021, “Neighborly sold to KKR at a very high valuation. They’re showing the market, private equity is giving them a premium. There are only so many home services companies out there to buy.”
Reason No. 2: “In general, people who are owning homes today are a lot less capable at fixing those homes than they were 20 years ago. It’s a generational thing, and millennials would rather outsource it all,” he said.
Reason No. 3: A lot of founders think “it’s a good time to sell,” he said, in part because the pandemic showed how unexpected risks can torpedo their plans. “If I have 98 percent of my wealth tied up in one business, I’m exposed to things outside of my control. It could wipe out 10, 15 years of work. I’m giving owners a way to take some chips off the table.”
He wouldn’t name the sales price for his own company, saying only, “Since 2015, and now six years later, the multiples are going up,” from about three times EBITDA or cash flow back then. “The market will pay 10 times, sometimes eight, sometimes 12, sometimes 15” today, he said.
And does he aspire to create the next Neighborly? “Um, my eyes are probably bigger than my stomach. I would never put myself in that category today. They’re an amazing company with an amazing leadership team,” Abbott said. “I don’t look at it as a race. I look at it as an aspiration, someday becoming as good as they are.”
A buyer’s and a seller’s view
“Here we go again. I feel very lucky. There’s lots of action to be had,” said Paul Flick, CEO of Premium Service Brands, which added House Doctors and Grout Medic to the family in fall 2021, and had two more acquisitions scheduled to close in the fourth quarter.
Many deals these days have valuations “above our pay grade,” Flick said. “Some of them are 10, 12, 14 times EBITDA. Some of the ones we did recently were eight to 10. I think the average is probably on the 12 to 14 range.”
That’s much higher than before. “Back then, geez, we were picking them up for two or three times EBITDA, and that was recently, that was three, four, five years ago. Private equity has definitely changed our industry for sure.”
He’s learned some lessons since starting his acquisition surge. “Once we’ve done a few, you learn from your mistakes and want to make sure you turn over all the rocks to make sure you’re getting what you’re paying for, No. 1,” Flick said.
And No. 2? “Whether you’re doing a small deal or a large deal it’s the same amount of time and effort, and acquiring something that has a little more volume impacts our company that much more right out of the gates.”
Kathleen Kuhn, former CEO of HouseMaster, decided to sell to Neighborly in July 2020, after fielding numerous offers from private equity firms. “There was so much interest. Actually, Neighborly was one of many. Certainly, they were one of the higher bidders, so the price was right,” she said.
“I don’t know if heartwarming is the term, but it’s nice to see that the equity world sees the value in A, the franchise model, and B, the home service model. I’ve never seen in the last three years so much interest in the space, and it’s exciting.”
Kuhn stayed on as an executive with Neighborly for about six months, then left to help raise a Series C round of investment for MooveGuru, where she is president. MooveGuru is launching a new franchise called YourHomeHub, which is a technology platform that helps consumers manage their homes from move-in through everyday living until they sell.
“They’re in the real estate vendor space and they’re going to franchise, and it’s technology and it’s very entrepreneurial,” she said about YourHomeHub, which has 13 territories sold. “It really checked all the boxes for me.”
Her advice for potential sellers: “I think somebody who’s ready to sell has to be ready to move on,” she said. “They have to be ready to let go, and that’s really the biggest challenge.”
The nitty-gritty of home services
Scott Sutton is chief growth officer for Threshold Brands, a platform company created in April 2021 by private equity firm The Riverside Company to acquire and operate home service franchises. It has seven brands under the umbrella, and counting.
“We would expect to have many more brands inside the portfolio. We have a ways to go. We’ve had a lot of interest inside of our brands, specifically our franchisees, in not just becoming multi-unit and -brand franchisees, but becoming multi-unit cross-brand franchisees,” Sutton said.
Riverside is not new to the sector; it bought and sold Neighborly, formerly called the Dwyer Group, on two different occasions. Sutton is a veteran in franchise M&A as well, driving acquisitions for Safeguard, a business-to-business franchise. But his new gig is different.
“When you do a lot of acquisition work, you work on one side of the table to get through the deal components, to get through the diligence, and then you work to transition that business to the group that’s going to be leading the group going forward,” he said. “Well guess what, now I’m part of that group that will move it forward!”
There’s another unexpected side of home service franchising, which he’s learning at brands like Pestmaster, FlyFoe and Threshold’s most recent acquisition, Sir Grout.
Reached during a conference in Las Vegas for pest services, he said he had a new vantage point when visiting the restroom. “Now I’m staring at the grout. Oh my gosh, this grout is disgusting!” he thought, illustrating on the micro level why the home service space is exploding.
Standout home services deals in 2021
#1 Home Franchise Concepts, a JM Family Enterprises subsidiary, added in September Two Maids & A Mop to its portfolio, which also includes Budget Blinds, Tailored Living, Concrete Craft, AdvantaClean, Kitchen Tune-Up and Bath Tune-Up.
#2 MidOcean Partners and its Lynx Franchising platform in September invested in Outdoor Living Brands, adding Archadeck, Outdoor Lighting Perspectives and Conserva Irrigation to the family.
#3 Threshold Brands, formed in April as a platform for home services franchises and backed by The Riverside Company, bought Sir Grout in September, adding it to MaidPro, FlyFoe, Men In Kilts, Pestmaster Services, USA Insulation and Plumbing Heating Paramedics.
#4 Stellar Brands debuted in April as the umbrella company for Restoration 1, Bluefrog Plumbing + Drain and future acquisitions, and bought The Driveway Co. MPK Equity Partners is the investor.
#5 Premium Service Brands attracted in April Susquehanna Private Capital as an investor, then bought Grout Medic and House Doctors, among others. The firm operates seven home services brands: 360° Painting, Maid Right, ProLift Garage Doors, Handyman Pro, Kitchen Wise, Rubbish Works and Renew Crew.
#6 Authority Brands in March bought DoodyCalls, its eighth brand addition since October 2018 and the company’s tenth brand in its home service portfolio. Others include: The Cleaning Authority, America’s Swimming Pool Company, Mosquito Squad, Monster Tree Service and STOP Restoration.