Brightview IPO & the Landscaping Market

The easiest way a kid could make money growing up was either to start a lemonade stand or mow their neighbor’s lawn. The latter, however, seems to be a dying breed. The landscaping industry, like many others, is seeing rapid consolidation and the end of many local firms. An industry that historically has been composed of small business and some larger regional firms is now seeing large national corporations thrive and grow, due to increased mergers and acquisitions (M&A). M&A refers to companies buying and selling other companies in an industry space. The recent uptick in the landscaping market is due to the success of the first time a firm publicly listed their stock for sale or an “IPO”. Due to the recent IPO of Brightview Holdings, private equity groups and other landscaping firms now face the task of consolidation, to ensure that the landscaping services market stays competitive.


Brightview Holdings is currently the largest landscaping company in the United States in terms of revenue According to the magazine Landscape Management, Brightview had $2.26 billion dollars of revenue in 2017. Which means they are one billion dollars ahead of their closet competitor, TruGreen, with 2017 revenues of $1.37 billion. This should provide a scope of how large Brightview is. But without initial investment, Brightview would not be the industry titan it is today.


In order to understand the success of Brightview Holdings, one must look into the history of its relationship with its largest investors, private equity firm Kohlberg Kravis Roberts (KKR). Private equity firms, like KKR, are groups of investors who invest capital into a firm, typically for a majority stake, and then become actively involved in the leadership and development of the firm. This is done to increase the value of the company prior to either for an eventual sale, to a larger company in the same industry or another private equity firm, or to make the firm public through an IPO.


Private equity firm KKR has a history of success with its investments, ranging from Dollar General to Pandora Media. In 2013 however, they decided to invest $1.6 billion dollars into the Brickman Group, at the time one of the largest landscaping companies in the United States, and a precursor to Brightview. Such a large investment into a landscaping company by one of the leading private equity firms in the world was a huge step forward for the landscaping industry, and this gamble on KKR’s part had a large payoff.


According to Andrew Kerin, Brickman’s chief executive officer at the time, the deal was done to “accelerate growth and extend industry leadership”. KKR did just that. One year later, Brickman Holdings merged with Valleycrest Companies to form the biggest landscaping company in history, Brightview Holdings, with KKR retaining a majority stake.


Brightview, then in the years leading up to its IPO, found itself on an aggressive acquisitions streak. In the months prior to their 2018 IPO alone Brightview bought five landscaping firms, each worth over $20 million dollars. These acquisitions have allowed them to expand their national footprint and diversify services. They now offer snow maintenance, disaster recovery, golf course maintenance and irrigation, in addition to their core services of landscape construction and maintenance.


Then, on June 28th, 2018 BrightView CEO Andrew Masterman rang the bell of the New York Stock Exchange (NYSE) and Brightview’s common stock listed on the NYSE under the symbol BV, at $22 a share. Masterman then stated, in June 2018, that he hoped the IPO would fuel more organic growth due to more capital available and added that Brightview was interested in acquisitions, but that they would no longer be a primary focus of the firm. Brightview is currently valued at over three dollars and currently trading at 14x its profits. In comparison Exxon Mobil is trading at approximately 11 times its profits, clearly demonstrating how interested investors are.


The interest in the landscaping industry stems from a variety for reasons. According to the Principium Group, private equity firms are very interested in the landscaping services sector because of its recurring revenues. These revenues stem from clients’ consistent need for lawncare maintenance, about once a week for most people, so payments are very consistent. Recurring revenues are also attractive because private equity firms typically utilize debt, and recurring revenues insure payments to service the debt, thus risk is minimalized while producing high returns.


To further underscore the importance of recurring revenues, recently the private equity firm ZS Fund invested into Juniper Landscaping, located in Florida. This investment occurred, however, only after Juniper conducted a revamping of its business structure. According to the Vice President of Juniper, Dan deMont, the investment stemmed from the fact that Juniper pushed growth on their maintenance side of the business, as this is where the recurring revenues stem from. This decision further underscores the attractiveness of recurring revenues. Juniper Landscaping is seen as a “platform investment” for ZS Fund


The platform investment approach is a hallmark of current private equity decision making. First, a private equity firms invests (usually a majority stake) in a fairly large landscaping company (typically with at least $40 million dollars in revenues) in order to enter the market. Then, a number of add on acquisitions are made, to trigger fast growth in the company and further its geographic reach.


Platform investing further plays into why private equity firms see the landscaping market as attractive. It is a highly fragmented industry, with huge potential for rapid consolidation. Brightview is the first major player in the space and there are many opportunities for private equity firms to conduct platform investments that could grow into firms as large as Brightview. The potential of growth is huge, and this is why the landscaping market is seeing such high amount of M&A activity.


As a final benefit of the market, investors are excited because landscaping is easy to understand. Unlike the Silicon Valley boom of recent years, which required high levels of education, explanation and visualization in order to understand potential technological investments, landscaping is fairly easy to understand; business and consumers require a service and the firms provide it to them. Many investors may see this as a breath of fresh air.


Since the beginning of 2016, the landscaping industry has seen over 39 confirmed M&A transactions, with all of them being backed by private equity. The main players in the M&A space in recent years attempting to catch up to Brightview have been TruGreen (backed by Clayton Dubilier & Rice), Yellowstone Landscape (backed by CIVC Partners) and SavATree (backed by CI Capital Partners). The largest merger in the past year was Trugreen and Scotts LawnService, with a deal worth approximately $200 million. All three private equity firms have revenues of over $100 million dollars and are expected to continue to seek acquisitions in the following months.


Landscaping firms are consolidating at a rapid pace and there will be plenty more examples of larger companies absorbing smaller businesses in the future. One could even expect a merger between two large firms that on the scale of Brightview firm. Either way, the landscaping market is seeing large amounts of activity and generating significant interest from investors. The future is certainly looking green for the landscaping services industry.