Restoration/Remediation & Cleaning Buisnesses
April 26, 2024
by a searcher from Washington University in St. Louis in St. Louis, MO, USA
I am currently exploring the restoration/remediation & cleaning space as a potential acquisition target. These businesses generally provide water/fire damage restoration and mitigation services.
If you or anyone you know is in this space, I'd love to connect with them!
from University of Texas at Austin in Fort Worth, TX, USA
I think they're a really tough first business to buy for a couple reasons:
- Slow cash flow conversion; all else equal, slow cash flow conversion = slower reinvestment cycle = slower growth
- High / unpredictable AR from insurance companies that have all the leverage means you have to be more conservative in cash management / reinvestment
- How the industry typically works, it's hard to gain pricing power via superior operations, sales, or marketing / branding
- Hard to "add value" via superior marketing with most leads coming from insurance companies or 3rd party companies handling the claims
- The process of getting added to another insurer, especially the good ones (e.g. USAA) can be long and difficult
- On call nature of work can be taxing as the owner-operator; size and a large team can mitigate this but still worth considering. You may need to make a judgement call on a project at 3am
- Insurers want multiple companies to choose from in any given market; they can make it tough to gain too large of a market share. Alternatively, they may fully support you going to a new geo where they have weaker partners. Double-edged sword, but just worth noting going in that growth may require adding new markets & all that that entails.
All of that said, I think it's a great 2nd or 3rd business to own because:
- If operations are dialed in and you score well with insurers on their metrics, it can be a very stable business.
- Performance is not as correlated to the economy and can be the beneficiary of adverse weather that may impact other businesses. I think this lack of correlation and bit of randomness to performance is a "con" as a 1st or only company to own but a "pro" as a 2nd, 3rd, etc. business owned.
- Strong operators typically win the biggest when big weather events happen (those with best training, processes, documentation, etc.)
- While there are operational challenges (like the need to be on-call), I think this is a better model for stable / low growth run by an "operator" / CEO that you put in place. With my first acquisition, I preferred to insert myself and drive higher growth, which I think is a bit capped in restoration relative to other home service industries.
from Bowling Green State University in Surrey, BC, Canada
You'll want a good storage facility and there's a bit of a build-out - think cheap and cheerful self-storage - for contents from customer premises.
What I like about them is, 'customers' are largely insurance companies - high quality AR - but they can be slow-ish payers. Service radius is also important as many insurers require specific response time SLAs.
Really dig into those customer relationships in DD.
Fairly fragmented but there are some decent sized franchises out there who could have a marketing advantage.
Good luck!