The M&A Market for Roofing Companies Remains Historically Active as Investors Continue to Value Steady Demand, Chase Scale
After a highly active 2023, deal activity in the roofing space continues at a rapid pace with no signs of slowing. Despite interest rates, inflation and economic uncertainty hampering deal making activity in most of the building products market, investors continue to aggressively chase roofing deals, attracted by the robust demand outlook, size of the market, and benefits of scale. These investors can offer a variety of solutions and partnerships for independent operators, as well as provide capital and expertise to assist management teams in achieving their goals. At the same time, many private owners are considering a transaction as valuations are attractive and the pool of competitive buyers has risen significantly, leading to historic deal activity.
- Consolidation continues at a robust rate, with more investors entering the market every day. Institutional capital providers (i.e., private equity funds and family offices) have a lot of money to put to work and record numbers have been targeting the roofing industry. Residential re-roofing businesses have attracted the most attention as investors like the self-pay nature of the business, the lack of weather-driven volatility, and the ability to scale and beef-up marketing functions with investments in digital/social marketing, KPI tracking, and CRM systems.On the new construction front, this market saw a shot-in-the-arm deal with the acquisition of Southern Exteriors by Monomoy Capital Partners in May of this year. The goal here will be to build a regionally and potentially nationally scaled turnkey siding and roofing solutions provider serving the builder market. It seems the worst of the new single family construction woes that plagued the market may be behind us.
- The insurance pay market faces structural challenges but also opportunities. Contractors serving the residential restoration/insurance pay market have struggled with stricter claims adjustments and rising deductibles for homeowners. Some operators are pivoting towards more retail and commercial business to offset the challenges here, while others, like hail belt specialist Apple Roofing (owned by Gauge Capital) are choosing to double down and specialize in this market. Providers who have or develop specialized capabilities in this market (close relationships with insurers, streamlined claims processing abilities, and in-house or third-party consumer financing) will do well as others exit or de-emphasize this market in response to challenges.
- Commercial market remains strong but is end-market dependent. Commercial contractors, especially those operating in the highly attractive re-roof and maintenance side of the business, have continued to see growth and outperformance. Attractive markets include healthcare, industrial and commercial distribution facilities, and data centers. The SLED market (state, local and educational) remains strong, though there can be working capital issues here, as municipalities are slow to process payments. Another encouraging trend is that commercial insurers in certain markets (e.g., Florida) are insisting on a more rapid replacement cycle to provide coverage, spurring demand for many weather prone marketsThere remain many aggressive, active buyers in the commercial space looking to acquire new business, including Tecta (owned by Atlas Partners), Nation’s Roof (backed by Acacia Partners), CORE Roofing Systems (Shoreline), and Pax Services Group (New State Capital Partners).
- Important trends include material shifts and the consumer buying process. Consumers in both residential and commercial markets are putting more emphasis on durability and useful life and less on aesthetics as they look to minimize lifetime costs. This includes a shift to metal roofing, synthetic materials, and solar. While homeowners continue to cite word of mouth/recommendation as the most frequent channel through which they find a contractor, the share of consumers starting their buying journey online (search engine, social media, home services websites) continues to grow. This channel will become ever more important as younger generations age into homeownership.
- Buyers are well capitalized and aggressively looking for growth. We appear to be entering the expansion part of the cycle after last year’s decline in housing starts, and any future interest rate relief will only contribute to the speed and size of the recovery. Many consumers have put off maintenance spending (especially relevant to contractors with meaningful siding exposure) and this pent-up demand will begin to materialize this year and next. Buyers in the new construction space are focused on turnkey solutions, doing for exteriors contractors what names like Interior Logic Group did for interiors. Overall, we expect investors to continue to be aggressive in sales processes, pushing valuations up.
- What should potential sellers think about in this market? The M&A market for residential re-roofers is as strong as it has ever been, and the window is wide open for potential sellers. If you’re considering a transaction, now is the time to get serious and begin thinking about kicking off a process.The story is similar for commercial maintenance/re-roofers as there are more well-capitalized aggressive acquirers than any time in recent memory.
Near-term sellers should begin evaluating their readiness, including the strength of the management team (sales, operations, finance), credibility of reported financials (audits/reviews, internal controls, speed and regularity of month and quarter closes), and their own goals for a transaction (value, timing, impact on employees, legacy, etc.)
If your timeline is longer than the next several months, potential sellers should 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 the ultimately plan to go to market.
As a trusted advisor to owners and executives in the Roofing & Exteriors space, we leverage our 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.