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Stellex acquisition of P3 from Crescendo benefits from pandemic-era focus on the home

"The plumbing services sector is highly fragmented and hyper-locally operated with limited private equity investment to date," Irina Krasik of Stellex, told PE Hub.

Housing activity was under-funded from 2010 to 2020, but the pandemic has breathed new life into the old cliché, “Home is where the heart is.” Private equity firms are taking advantage of the increased interest in everything home-related, investing heavily in companies that help people buy, build, renovate and maintain their homes. To that end, Stellex Capital Management announced on Tuesday a new platform investment in Peltram Plumbing Holdings, known as P3.

Stellex acquired P3 in partnership with the existing management team from an investor group led by Crescendo Capital Partners. The deal closed, for undisclosed terms, on December 30. PE Hub interviewed investors from Stellex and Crescendo to find out more details about the deal and about the increased opportunities for PE in the plumbing industry.

“The plumbing services sector is highly fragmented and hyper-locally operated with limited private equity investment to date,” Irina Krasik, principal, Stellex, said. “Stellex and P3 Services have the opportunity to become one of the largest multistate, locally operated providers of end-to-end plumbing services solutions with installation, maintenance, repair, and restoration capabilities. In terms of market demand for plumbing services, on the residential side, the housing stock continues to age, with the average age of a home in US being over 40 years old, and continuing to age as the rate of new home construction is not keeping up. On the commercial side, outsourcing of maintenance and repair services and the focus on prevention are all driving factors of demand.”

P3 represents a rollup Crescendo spent three and a half years developing, bringing together Peltram Plumbing, Power Plumbing, Precision Plumbing and ER Plumbing.

Crescendo’s goal was “to build a quasi-national plumbing platform, initially focused on new construction in great markets, then morphing to service,” founding partner CL Turner explained. “We accomplished this objective via the first platform, Peltram in Seattle, followed by Precision in Charlotte, then Power in D/A/S/H (Dallas, Austin, San Antonio, Houston). We added some plumbing service to the installation front. Having reached ~$30M EBITDA on ~$200 million revenue, we had largely ‘maxed out’ Crescendo’s ability to fund acquisitions. Our understanding is that Stellex will build the service components, exactly as we would do but for capacity constraints. With respect to service, the built-in demand from the installed base is quite actionable, as long as the service infrastructure is built/developed/purchased.”

Until the sale, Turner was chairman of the board of P3. On exit, Crescendo owned 40 percent of the equity. During Crescendo’s ownership, P3 grew revenue and EBITDA by 7x. The sale to Stellex represents Crescendo’s third construction/renovation/repair to achieve a return of more than 5x. The other two were Westcoast Gates and Empire Marketing. A fourth exit is in the works.

What lies ahead for P3 Services? It is “well positioned to take advantage of current trends due to its strong reputation, large and loyal base of customers, highly skilled employee base and seasoned management teams in local markets,” Krasik said. “In addition, Terry Young (P3 CEO) and Chad Lusco (P3 CEO of maintenance and repair services) bring tremendous industry and M&A experience to the company and will help propel P3 Services into the next chapter of its expansion story through organic and acquisition-focused growth. With additional capital and resources, we strongly believe P3 Services will be able to materially expand its maintenance and repair services business as well as improve operations through tech-enablement and the sharing of best operational, employee retention and recruiting practices across all markets.”

We’ll be watching to see if P3 buys more local plumbing services soon.