The Business Merger of Two BSCs

By Gary Penrod 

Recently, I had the pleasure of assisting the shareholders of a building services company divest the interest in their company to another building services company. I worked closely with my client’s shareholders and with their management, as well as with the prospective buyer company’s management. I have assisted many other firms in their divestiture efforts; however, in this case, my client’s company and the acquiring company each represent what I consider to be the archetype of good companies to be found in this $90 billion building services industry in the United States. 

The USA building services industry is considered to have its origin at the end of World War II, even though its genesis may have been earlier. My client’s company was founded in 1930 and operated by succeeding family member shareholders since then, making it truly unique. The Great Depression, World War II, the post-war boom and other world events took place as my client's company continued its operations inexorably toward the day the current shareholders would decide to divest their interest to move on to other ventures. It was not an easy decision for them, but one that they considered to be wise. The company is of a revenue size considered to be within the top 12 percent to 15 percent of companies operating in the USA. The company’s operating performance has been stellar and well above industry standards. Operating acumen and sound fiscal management gathered over 95 years made this company a good add-on for the right investor or strategic buyer. 

There was no effort made to mass-market the company. Instead, three interested and qualified buyers were approached after careful consideration in an effort to find a good match. Two submitted letters of interest. After careful consideration, one was accepted. Closing occurred within eight months after beginning the process. 

Thinking about the transaction after its recent closing, I realized the buyer company also represented the best in the industry. Its gross revenue puts it in the top 1 percent to 3 percent of companies operating in the building services industry in the United States. Its current scope of operations is national. As with the acquired company, it was founded many years ago by an entrepreneur with a dream. In this case, the founder was a World War II veteran, starting from scratch to build his company in the years immediately after the end of the war.  It, too, grew organically with a regional presence only. After several decades of operating regionally, the sole shareholder divested his interest to a group with plans to grow organically and to acquire other companies, thus putting the company on a different trajectory than my client’s company that eventually they would acquire. 

Two fine companies, each starting with the dream of success in a new industry that over the decades, would grow dramatically. Now my client’s company, with its capable management staff intact, is part of a much larger group with expanded opportunities before them in an ever-expanding industry. The shareholders will, after a brief transition period, be able to move on to new ventures outside of the building services industry. 

Some may say this scenario and others that are similar is proof the building service industry is and will continue to be consolidated. True, there is some consolidation within the industry. However, it is also true that, as with the founders of my client’s company and the acquiring company, new founders with a dream of success and a desire to be in control of their own destiny, are starting new companies every day. My thought is that considering the growth of the industry and the opportunity for success, new company formation will outpace the consolidation effort. 

While I have no crystal ball, I hope I am correct about the building service industry consolidation in that it will continue to be an entrepreneur’s dream industry, resisting massive consolidation, thus opening the door for those that want to enter. Acquisition within the industry will, of course, continue, providing growth opportunities for strategic buyers and investors as well as a way for the shareholders of acquired companies to exit, moving on to a new life. 

Stay tuned as the building service industry continues its evolutionary and inexorable journey to the future, offering opportunity for those that dare to join its ranks. 

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

Penrod is a former BSCAI Board Member and President.