Recurring revenues of home maintenance services attract private equity

Morgan Stanley, Thompson Street, Rock Mountain and FRE are snatching up providers of services for lawn care, home inspections and pest control.

Home is where the heart is, so the saying goes, and that certainly seemed true during the lockdowns of covid, when home care became a high priority for many people. Now, with uncertainty in the economy, many people are once again seeking to make the most of their homes. It all adds up to investment opportunities for private equity firms. PE Hub has identified many recent deals involving home maintenance services, such as home inspection, pest control and lawn care, over the last several months.

“The fragmented nature of the home inspection industry presents exciting opportunities,” said Michael Rubel, managing director at the Westport, Connecticut-based RFE Investment Partners. In June, RFE invested in Max Home Inspections. Based in Davie, Florida, Max Home provides home inspections and other services, such as pest control and preventative maintenance, in Florida and Texas.

Some PE firms are gravitating toward eco-friendly pest control mechanisms. In May, Rock Mountain Capital-backed VCM Products acquired Vic West Brands, a provider of plant-based pest control products.

Headquartered in Austin, Texas, Vic West Brands has its natural pest control products sold in multiple countries.

“We are especially excited about this acquisition given the shared focus on natural and clean ingredients, expanded breadth of pest repellent offerings across the combined product portfolio, and opportunity for continued channel expansion in both brick and mortar and online,” John Battinelli, principal, Rock Mountain Capital, noted in a press release.

New York-based Morgan Stanley Capital Partners invested in Little Rock, Arkansas-based Fairway Lawns,  a company that operates 16 branches across the Southeast region.

The deal “represents an opportunity to execute on our core strategy of investing in focus sub-sectors where we have deep institutional knowledge and experience to drive value creation,” said Adam Shaw, managing director and head of business services, MSCP.

Thompson Street Capital Partners, a St Louis, Missouri-based PE firm, has been especially active in the pest control space through its platform PestCo.

In July, PestCo acquired Alliance Commercial Pest Control, a provider of commercial and residential pest control in New Jersey, New York, and Pennsylvania. The same month, PestCo also acquired Mick’s Exterminating, focused on residential and commercial pest control in the St. Louis area.

Previously, PestCo acquired Bel-O Pest Solutions, another St. Louis area provider of residential and commercial pest control service. In February, PestCo acquired Pointe Pest Control which operates Pointe Pest Control in Illinois and Green Pest Services in Virginia.

“We like to invest in businesses that are recession resistant, have recurring revenue, and have a high free cash flow profile, meaning that they don’t require lot of working capital or capital equipment to operate,” explained Jeff Aiello, TSCP’s managing director about his firm’s strategy.

He said TSCP likes to invest in businesses that are in large, fragmented markets that allow for add-on acquisitions that bring strategic opportunities at time of sale. “I would say pest control checks all those boxes.”

In commercial cases and heavy termite risk areas, Aiello said a pest free environment is a highly desired, if not a non-discretionary, item. He said population growth, increasing temperatures, marketing investment, and consumer education are some of the factors driving growth in this sector.

The TSCP managing director likened the pest control industry to sectors, such as residential plumbing/HVAC services and commercial fire safety, in which private equity is relatively underpenetrated.

“We believe this is a space that is going to grow in the long term,” he said. “If we hold for longer, say for five to seven years, we think we are going to have a very good return on this.”