By Gary A. Penrod, CBSE

It’s likely that each building services company owner or primary shareholder has given some thought about the company’s worth over the years. Often, the company was started from scratch, followed by years of hard work, sacrifice and worry. More often than not, relative success was achieved and years passed. 

As with many businesses, the time will come when owners will have to consider divestiture of what is for many founder shareholders, their largest asset. Time dictates that every business will eventually transition to different ownership, with no exceptions.

Companies engaged in the janitorial sector of the building services industry are unique in that hard assets are minimal, leaving soft assets as the primary assets. So, how is value determined for a company with few hard assets, customer contracts with varying time limitations (typically, initially three years with provision for a two-year extension) and a contract provision for a 30-day, 60-day or 90-day cancellation? In some investment circles, that scenario limits interest. Yet the acquisition experience within the industry over decades supports relatively strong valuations for well-managed companies by both strategic and investor buyers.

It is estimated that the janitorial sector of the building services industry is about $90 Billion annually in the U.S. Of the estimated 45,000 American janitorial service companies, the majority have less than $3 Million in annual revenue. However, there are also many larger and much larger companies engaged in the sector. Experience data suggests that, with very few exceptions, most companies that are engaged in the sector can be sold for a fair price and reasonable terms, regardless of revenue size.

Some believe that through acquisition, the sector is headed for consolidation. But many experts disagree with that theory since new start-ups out-pace the current rate of acquisitions, some of which will become large, successful companies.

The sector is attractive to not only strategic buyers, but to investor buyers as well. The investors are attracted by the sector’s recurring monthly income, low CapEx (Capital Expenditure) and its proven recession and calamity resistance.

Valuation, as in other industries, is influenced by a variety of factors. Here are some that apply to the janitorial service sector:

1. Gross revenue. Larger is better; annual revenue above $10-$20 Million is favored; however, very small companies can be sold well, too. Even investor buyers that usually have a high profit threshold may have interest in smaller companies if they already have a janitorial sector company in their portfolio.

2. Market area. All market areas have something to offer buyers. However, the southern and southwestern states (Sun Belt) is currently among the favored market areas.

3. Profitability. Earnings showing 10-12 percent adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is looked upon as being favorable. Add back to profit adjustments are expected, but if excessive, it may be looked upon by a buyer to be unfavorable.

4. Customer Concentration. A heightened risk factor may be perceived if any single customer represents more than 12-15 percent of total gross revenue. However, companies with concentration issues can be sold well, too, but usually with special provisions for the concentration issue. There are companies that have been successfully acquired with customer concentrations levels above 50 percent, but with special structure provisions.

5. Market Sector(s). A buyer may consider some market sectors to be better than others. Among the current favored sectors are: Life Sciences, Medical, Education, any Owner-Occupied space, plus a few others.

While these factors can influence valuation, most companies of good repute, that are well managed, and can show a history of profitable performance, can be sold with both the buyer and the seller being satisfied with the transaction. 

Sometimes, sellers are confused about why qualified, interested buyers arrive at different valuations for their company. Simply stated, the valuation reflects the effect that the company’s acquisition will have on the buyer’s overall enterprise. Each buyer’s company is unique. Valuations may vary from buyer to buyer, reflecting a given buyer’s perception and opinion about the overall fit of the seller’s company.

Initially, a buyer may express their opinion of value as a multiple, times agreed upon adjusted EBITDA. Sometimes, the multiple will be expressed as a multiple, times agreed upon gross profit. The multiple, whether for adjusted EBITDA or gross profit, will vary depending on the size of the company and other influencing characteristics.

Each acquisition transaction is unique. While there may be certain common characteristics among companies, each is different from others in some subtle ways. Ultimately, it is the buyer and the seller — acting in good faith and in possession of all pertinent information about the other — that will decide whether or not a certain acquisition transaction is the correct path for them to follow.

Acquisitions within the janitorial sector of the building services industry will continue as in the past, providing for growth and expansion for qualified strategic and investor buyers and a good exit option for the shareholder(s) of well managed companies, regardless of the company’s size, market areas and market sectors.

Gary A. Penrod is a long-time building services industry leader, author and speaker, having founded and operated a successful service company. After that company’s divesture, he founded Gary Penrod and Associates, Inc (GPA), an industry-specific M&A group, having exclusive focus in the building services industry. GPA continues to serve the industry, having successfully assisted many firms with their divestiture process in the USA, Canada and The Caribbean.
Penrod is a former BSCAI Board Member and President.


posted on 8/8/2025