"Follow the money." How many times have you heard that line in a movie or televised crime drama? The reason that it's so common is because it's so true. Money follows the "action" wherever the action is, and especially in putting together business deals, mergers or company buyouts.
In terms of money the latest revelation of a possible business deal in the landscape industry could turn out to be a whopper. On April 24 the Financial Times reported that KKR, New York-based Kohlberg Kravis Roberts & Co., the owners of The Brickman Group, is in talks to purchase ValleyCrest from Michael Dell's MSD Capital, also based in New York.
KKR is a global investment firm founded by founded by Jerome Kohlberg, Jr., Henry Kravis and George R. Roberts (Kravis and Roberts are cousins). Since it's founding in 1976 it has completed more than $400 billion in private equity transactions. In its latest quarterly report on April 24, it reported assets under management of $108 billion.
Along with The Brickman Group, other well-known U.S.-based "portfolio partner" companies under KKR's umbrella include Go Daddy and ToysRUs,Inc. It also has controlling interest in companies in Germany, the United Kingdom, China, The Netherlands, Vietnam, Singapore, Japan, Australia, France, India, Turkey, Malaysia and Taiwan. KKR is truly a global company with 13 offices in the United States, Europe and Asia.
The rapidity with which KKR is moving within the industry is one of the most surprising aspects of this potential transaction. Just this past November KKR & Co. acquired The Brickman Group, headquartered in Rockville, Md., from Leonard Green & Partners for $1.6 billion.
On the surface at least, that would appear to be a pretty hefty premium for Brickman that generated approximately $900,000 in revenues in 2013, about a 6 percent increase from its 2012 revenue. But then Brickman, all of its branches operating with a standard production model, has consistently shown strong year-to-year growth. The same could be said for ValleyCrest.
The merger of the Brickman and ValleyCrest would create the largest landscape company in the world. Both firms service corporate and commercial clients, HOAs, health care, educational facilities, public spaces and parks and hotels and resorts. Both companies offer property development services. In addition Brickman has a robust sports turf division, while ValleyCrest offers golf course maintenance. It's ValleyCrest Tree Company has 800 acres in production in northern and southern California.
Obviously, KKR's interest in ValleyCrest suggests it is convinced that landscape and property management services have a brighter future and a bigger role to play in the U.S. economy.
A Dynamic Industry
If the KKR deal, believed to be in the billion dollar range, is finalized it will be the biggest deal in what's turning out to be one of the busiest M&A years since the late 1990s when rollup specialist Landcare USA competed with ServiceMaster to snatch up regional landscape companies.
That feeding frenzy ended in 1999 almost as abruptly as it began when Landcare USA, which had gone public the year before, merged with ServiceMaster (TruGreen's parent company), leading to the formation of TruGreen LandCare.
As it turned out, the Memphis-based company miscalculated its ability to knit the several dozen formerly independent regional companies into a "national" landscape company. TruGreen LandCare had difficulty performing to its Memphis-based owner's expectations. When some of the previously bought out (and saavy) landscape company owners returned to compete against the ServiceMaster operation its performance sagged even more. Then, of course, the 200-2009 Recession, hit many landscape companies, including TruGreen LandCare, very hard.
ServiceMaster finally unloaded struggling TruGreen LandCare to Aurora Resurgence Capital in 2011for a fraction of the price it had originally paid for it..
That's hardly the only financial implosion involving the purchase of a national green industry company.
The acquisition of ChemLawn, the largest lawn care company in the world at the time by EcoLab, based in St. Paul, Minn., in 1987 for $360 million turned out to be a disaster for EcoLab and for ChemLawn. In 1992 a company owned by ServiceMaster and Waste Management took ChemLawn off of EcoLab's hands for a third of what it had originally paid for ChemLawn.
That's not to suggest that a KKR buyout and merger of ValleyCrest with Brickman (not a done deal yet) wouldn't be successful. In fact, mergers and acquisitions are common in the landscape industry, and many of them are quite successful. This activity is evidence of the landscape and lawn service industry's dynamism, a fact often unrecognized by businesspeople unfamiliar with the industry.
And, of course, KKR could hardly have build the track record of success and growth that it's built to this point in its history without performing due diligence and thoroughly researching its investments.
Even so, inasmuch as Brickman and ValleyCrest have multiple company-owned branches in many of the same markets -such as Florida, Atlanta and up the East Coast and in strong landscape markets such as Denver and California - should the deal to occur, the new merged company will face a challenge in determining who will lead its many regional locations . . . and who will be released.
Then, of course, there's the matter of company culture. While both companies are recognized as strongly managed, safety-conscious companies that provide quality services, every company (small or large) has its unique, often idiosyncratic culture.
Now let's check out the two main players in the latest merger speculation -- The Brickman Group Ltd. and ValleyCrest--and how they've arrived at this point in their histories.
Both companies, ValleyCrest, headquartered in Calabasas, Calif., and Brickman, based in Rockville, Md., recorded revenues north of $900 million this past year. They're the most iconic and largest landscape/horticultural companies in North America. Together they number about 20,000 employees.
The Brickman Story Briefly
Theodore W. Brickman, Sr., a self-taught horticulturist who moved from Pittsburgh to the Chicago area in 1933 to work in the gardens at the Chicago International Exposition, founded the company that still bears his family name in 1939. He was working with the Chicago Park District when he started the Theodore Brickman Landscape Company. Initially he focused on doing work for residential clients.
In 1957 his son Theodore "Dick" Brickman, who had earned a degree in landscape architecture, began running the company, and began moving it into the commercial and retail markets. Two years later it was incorporated as Theodore Brickman & Company and its headquarters moved to Long Grove, Ill.
With Dick Brickman at the helm, one of the firm's most significant projects took place when Ray Kroc, founder of McDonalds, in 1971 hired the company to landscape the new McDonalds headquarters in Oak Brook, Ill. The job gained Brickman praise from many quarters, but, also, came with the stipulation that Brickman continue to maintain the corporate property.
Few people at the time (including perhaps Brickman management) likely foresaw how large landscape maintenance would subsequently become in terms of its importance to the green industry services industry. Or how dominant the then Chicago-based Brickman would become in serving that particular segment of the market.
In fact, until the mid 1990s most of Brickman's revenues came as a result of landscape design/build. But that changed dramatically in the following years as the company, which had moved its headquarters to Maryland, perfected its ability to deliver customer-pleasing maintenance services at very competitive prices.
In 1992, the company sold 70 percent interest to CIVC Partners of Chicago and Bank One Investment Management Group, Columbus, Ohio. In 2002 the company, now with Scott Brickman at the helm (the third generation of the family to serve as chief executive) bought back the Bank One interests. At the time Brickman recorded sales topping $300 million. Through acquisitions it had locations on both coasts and in select markets across the United States.
In January 2007 Los Angeles private equity company, Leonard Green and Partners LP acquired majority holdings in Brickman through an $847 million buyout. Leonard Green reportedly committed $222 of equity with the Brickman family and management retaining equity interests, according to media reports.
This past November KKR & Co. agreed to by Brickman Group Ltd. from Leonard Green & Partners for $1.6 billion.
The ValleyCrest Story Briefly
The history of Southern California-based ValleyCrest is no less inspiring, in no large part due to the energy, vision and business acumen of Burton "Burt" Sperber and his younger brother Stuart Sperber.
That story starts in 1949 with 19-year-old Burt buying a small nursery in North Hollywood, Calif., were, as a student, he had been working after school. He named the new enterprise Valley Crest Landscape Nurseries, Inc. With the help of other family members who oversaw the nursery, Burt began doing simple landscape projects for homeowners in the San Fernando Valley.
Sperber discovered, as have most landscape company owners smart enough to deliver the high quality of service that they promise and fortunate enough to set up shop in a rapidly development market, that business is good. And good it turned out to be as Southern California (especially the suburbs) exploded with development in the 1950s.
Burt's younger brother, Stuart, joined the company in 1961 soon after earning a degree in horticulture from Cal Poly Pomona. He took over the company's newly formed Valley Crest Tree Company, which started on three acres of land in Sepvuleda, Calif. Under Stuart's guidance and vision the company revolutionized the way that large specimen trees were grown and moved for landscape projects.
As word of the quality (and speed) of his company's work spread, so did the size and reach of his company. By the early to mid 1960s his firm was making acquisitions, acquiring contracts and doing landscape projects as far away as Florida and Illinois.
In 1969, several years after expanding into the northern California market, the Sperbers founded Environmental Industries, Inc. (EII), to consolidate their company's multiple operating units. In 1970, Richard A. Sperber, Burt's son, assumed responsibility for one of the company's three divisions.
About this time also saw the company roll out Environmental Care Inc. (ECI), its landscape maintenance division. ECI offered year-round full maintenance programs for ornamentals, seasonal color, pruning and irrigation, among other recurring services. ECI grew steadily.
By the end of the 1990s ECI was providing services throughout the Sun Belt as well as Colorado and billing approximately $100 annually. The company had its Environmental Golf subsidiary up and running and had acquired, in 1996, U.S. Lawns, the lawn and landscape franchise organization headquartered in Orlando, Fla.
The 1980s saw ValleyCrest provide the landscaping for many of the venues in southern California used for the 1984 Olympic Games. This included the Los Angeles Coliseum, which hosted the opening ceremonies for the Olympics. The firm followed those triumphs by designing and building some of the most iconic hotel landscapes on the Las Vegas Strip, including the Mirage and, later, the Bellagio hotel property.
Other world-class projects included the Atlantis Hotel in The Bahamas, the Getty Center in Los Angeles and Walt Disney's Animal Kingdom in Orlando.
In 2001, Richard Sperber became the company's president and COO and, within the year, abandoned the EII label in favor of ValleyCrest Companies to reflect its heritage. The company continued to grow into the new Millennium with Richard Sperber adding two new divisions.
In 2006, Michael Dell's MSD Capital investment company took majority ownership interest in ValleyCrest companies. Burton S. Sperber, founder and CEO, Richard A. Sperber, president, and Stuart J. Sperber, CEO of Valley Crest Tree Company, continued to manage the business while retaining significant equity ownership.
Stuart Sperber, 70, died in Sept. 7, 2007, and Burton S. Sperber, 82, died Oct. 3, 2011.
As they guided and built ValleyCrest through the decades, the Sperber family generously contributed to scholarship funds, aided schools and charities, and undertook and completed numerous community service projects.
A Final Thought
It's sad that the visionary founders of these two iconic landscape companies are no longer with us to see the next chapter in their companies' histories. And, in a sense, it's even sadder (at least to me) to contemplate the two once-proud family companies becoming a single company, similar to the seeing the melting away of industry leader and lawn care giant ChemLawn, started by the vision and drive of Richard "Dick" Duke, who died of a heart attack just as it was emerging as a national company.
It's inevitable, it seems, that as industries begin to mature they also consolidate. The fact is that goal of most individuals who start companies, in addition to providing for their families and their employees, is to create something that outlives themselves and continues to create value for others ongoing whether it's for surviving family members, their employees or the people that purchase their companies.