Private Equity Investors Are Attracted To The Cleaning Industry

The contract cleaning industry is a great opportunity for investments. Outside investors are becoming increasingly interested in buying building service contractors. There are four types of buyers that complete the majority of transactions each year. In this tip, I will examine the third type: Middle Market Private Equity Investors.

In recent years, private equity investors have become increasingly interested in janitorial businesses, attracted to the stable cash flows, market fragmentation, recurring revenue and long-term industry growth prospects.

The traditional model involves hub-and-spoke acquisitions, acquiring a large janitorial company in a major metropolitan area and growing it through a series of smaller regional acquisitions. Once they secure a platform acquisition, private equity investors typically seek to complete several acquisitions per year for the following five years.

Private equity investors utilize a combination of debt and equity to finance acquisitions, utilizing a model classically referred to as a leveraged buyout. They bring strong lending relationships to the table in any deal, so their ability to secure financing is rarely a concern; however, given the sizable amount of debt, their valuations are strongly correlated to the amount of financing available.

Private equity investors rarely get involved in daily operations, and instead hire a management team to actively run the business. As a result, they need to acquire janitorial companies that will remain fully staffed after the transaction closes. Sellers can expect to work for them for several years after the closing, unless the seller is completely uninvolved in operations or the business otherwise is able to absorb his or her production.

Peter Holton is the Managing Director for Caber Hill Advisors and has been in the service industry for nearly 20 years and is well known and respected throughout facility maintenance industry. He manages the firm's practice facility maintenance sectors. Peter offers valuations, exit planning, consulting and buying or selling business. He has performed numerous speaking engagements for organizations such as ISSA and BSCAI. He can be reached at peter@caberhill.com or by visiting www.caberhill.com.