by: Evan Metzger
If you follow middle-market private equity, you’ve surely heard the terms “residential services roll-up” or “home-services consolidator.” These terms refer to an equity platform focused on acquiring HVAC, plumbing, electrical, or some other home repair or home maintenance business. Recently, these acquisitions have been all the rage in Private Equity, and the signs ubiquitous—you may even have noticed your own local handyman has recently launched their first marketing campaign or upgraded their storefront.
What’s the Big Deal?
So, what makes residential services such an attractive area for Private Equity? While the specific investment thesis motivating these investments will naturally vary by firm, four things come to mind as common themes driving PE interest in these businesses:
First—Fragmentation. That’s just a fancy way of saying there is an impressive number of these companies across the US. In fact, there’s more than 100,000 HVAC businesses alone across the US. Plumbing and electrical businesses come in at about the same number each. So, we’re talking about 300,000 businesses that could be potentially acquired and added to a platform. That’s no small number.
Second—Opportunity for Professionalization. Most of these businesses are local mom-and-pop style repair or maintenance shops. They may not have a website, most likely won’t have a CRM, and possibly aren’t taking advantage of monthly recurring revenue opportunities (for example, by providing regular maintenance to their existing customer base). This is where Private Equity can make a significant difference—historically, PE has an impressive record of coming in and driving operational improvements in these types of businesses once they’ve been added to the platform.
Third—Organic Growth. According to the NAR, single family housing starts are forecast to increase this year by 4.7% and another 4.2% in 2025. All these new homes will require numerous kinds of residential services—from initial HVAC unit installations to electrical repairs—and so there’s considerable market tailwind behind these services.
Finally—Recession Resilience. While no business is entirely immune to economic downturns, the home services industry comes pretty close. In an uncertain market, you might skip that fancy dinner out, but you can’t ignore a broken furnace in the dead of Chicago’s winter or survive a summer in Phoenix with a busted A/C unit.
The Perfect Storm for Continued Growth
All signs indicate that PE investment in home services rollups is an upward trend that will continue to accelerate. At the start of 2024, global buyout firms were sitting on a record $1.2 trillion in “dry powder”–money ready to be invested. Couple this with an aging generation of Baby Boomer business owners looking to retire and therefore potentially sell their companies to investors, and you’ve got a market that’s primed for action.
The Bottom Line
The home services sector is experiencing a massive transformation, driven by private equity’s keen eye for untapped potential. As investors continue to pour money into modernizing and scaling these essential businesses, we can expect to see more consolidation and innovation in the years to come. For homeowners, this could mean access to more professional, tech-savvy service providers. And for those savvy investors? It might just be the next big thing in portfolio growth.
Evan Metzger is a Project Manager at ECA Partners. He can be reached at [email protected].
