The M&A Market for Roofing Companies is Strong, with Some Slow Down in Velocity as Consolidators Focus on Integration
Private equity interest in the roofing contractor space continued in 2024 after a robust 2023. Institutional investors remain excited about the steady demand, high cash flow conversion, low working capital, and general growth trends for the re-roofing industry, especially in the residential side of the market.
While 2022 and 2023 were a bit of a feeding frenzy, with intense competition for assets coming to market as newly established platforms chased size and scale, 2024 was slightly more disciplined. Many platform companies took time to focus on integration, marketing strategies, systems roll outs and execution, taking a more diligent and value-oriented approach to new deals. As a result, multiples came down somewhat from their peak of 8x – 11x EBITDA to a more reasonable (and sustainable) 6x – 9x.
As a trusted advisor to owners and executives in the Roofing & Exterior Contractor space, Anchor Peabody leverages its unmatched industry knowledge and M&A expertise to achieve best-in-class outcomes for founders and owners. We welcome a confidential conversation to discuss your options and strategy in this rapidly consolidating market.
- Residential business remains strong and attracts significant interest. Residential re-roofing is still relatively fragmented despite several years of consolidation activity. We are at a stage of the cycle where several investor-backed platforms are well established and have achieved significant scale but continue to look for strategic add-ons. The shift here has come as acquirers have completed their initial set of deals and can afford to be pickier in their incremental deals, focusing more on strategic fit, geographic adjacency and achievable synergies. In the new construction market, private equity had typically shied away from the cyclicality that comes with this subsector, but in May, Monomoy Capital Partners purchased Southern Exteriors, a turnkey roofing and siding contractor serving the production builder. This is a good endorsement of where we are in the new residential construction cycle, and it’s encouraging to see private money take a bet on this market. We expect to see more roll up activity in this space in 2025, especially as the homebuilding market recovers from a lackluster 2023 and 2024 driven by high interest rates and uncertainty.
- Insurance market buoyed by storms, but geographically volatile. The storm repair market will benefit significantly from major storms that hit Florida this year, as the Gulf Coast was hit twice over a three-week period by Hurricanes Helene and Milton. Investors remain skeptical of pure-play storm driven work, outside of reliable markets like the Midwest hail belt. Still, storm-related work should provide an uplift for contractors serving affected areas, and contractors with multiple capabilities including storm restoration work will continue to remain attractive acquisition targets.
- Commercial reroof market remains a focus area, Tecta America potentially coming to market. While most institutional investors have focused on residential self-pay re-roof work, the commercial market remains active. While payment terms and labor intensity are slightly less attractive to investors than the residential side of the market, commercial contractors have continued to attract interest, especially those with significant maintenance and service capabilities. Attractive markets include healthcare, industrial and commercial distribution facilities, and data centers. In a recent Roofing Contractor Magazine survey, 80% of respondents said they expect commercial sales revenue to increase in 2025 over 2024.
Rumors surfaced late this year that the owners of Tecta America (Altas Capital and Leonard Green Partners) are considering options for the business, including a potential sale. This suggests the company, America’s largest commercial re-roofing operation, has continued to perform over the cycle and that backlog and project growth remain strong. A sale of Tecta America to a new owner with a fresh outlook and significant capital backing the deal could set off a cascade of deals in the commercial re-roof space, and a deal will yield important price discovery information on where these assets should trade in the market.
- Technology is becoming an important differentiator. Consumers continue to expect a technology-enhanced transaction process. In the residential market, homeowners are managing more of their experience, from locating a contractor through scheduling and job completion, online. Roofers are responding by deploying digital customer management systems (e.g., ServiceTitan, Roofr, etc.) and directing more marketing dollars to digital campaigns for lead generation. Contractors who can successfully employ and train on these systems earn higher satisfaction scores and are better able to track their lead generation and customer acquisition cost. This technology scales quickly and will be a further driver toward consolidation.
- Buyers are looking to put money to work. As financing conditions have eased somewhat with lower rates and election uncertainty has been resolved, buyers continue to look to put significant amounts of cash to work through acquisitions. The Home Depot made a major bet on the roofing industry this year with its acquisition of SRS, and any time a bellwether company like that makes this kind of move, the market takes notice. Consolidation in the upstream distribution channel will put pressure on installation services companies to grow larger to match the scale of their vendors, and an endorsement of the long-term fundamentals of the market from a company like The Home Depot will re-confirm the thesis of other buyers that this market is a long-term grower and the time to buy is now.
- Advice for potential sellers. The M&A market for roofers remains open and active, and while velocity has come down somewhat, the current timing in the cycle and macroeconomic indicators suggest that 2025 will be a good year for independents to explore M&A. Earlier in the cycle, many acquirers were focused on pure-play acquisitions – focusing on businesses that were 80%+ in the market of their platform (residential re-roof, commercial maintenance, etc.), leaving more diversified businesses largely on the sidelines. As these platforms become more mature and owners wrap their hands around a single subsector, they will likely be more open to diversification plays. This will create a more robust market for independent roofers who split their time between commercial and residential end markets.
Potential sellers should continue to focus on things that will drive value and certainty of close. This includes a) Customer and end-market diversification if the current business is highly concentrated in one market; b) Strengthening the organization and back office and ensuring the business has a strong team of leaders in sales, finance and accounting, and marketing; c) Considering deployment of software and systems that can help across the business in both marketing and operations (e.g., CRM systems, job tracking, KPI monitoring, etc.).
- Preparation remains paramount. It takes approximately 6 months from start to finish to complete a private sale in the industry, but at Anchor Peabody our work often starts much earlier. The more preparation time, the better the outcome. Understanding the company strategy, the management team and bench, the strength of the finance and accounting team, the growth plan and its defensibility are all key to achieving a successful transaction. We work with potential sellers months and sometimes years before they the ultimately plan to go to market.
International Roof Expo 2025 – San Antonio: If you are in roofing and exteriors business, we’d love to see you at IRE 2025 in San Antonio in February. If you’re interested in an on or off-site meeting, please reach out to me at [email protected] or call at 917.520.2256