Viewing the 'New' Brickman from Different Perspectives

Questions remain about the impact of the biggest fish in a bigger crowded pond
by by Ron Hall
8/19/2014

The industry media frenzy surrounding the acquisition of ValleyCrest by Kohlberg Kravis Roberts & Co., L.P. (NYSE:KKR) earlier this year has pretty much died down. KKR, of course, added The Brickman Group to its portfolio of businesses almost a year ago, then several months ago picked up ValleyCrest and combined the two.

Let's revisit KKR and the implications surrounding the formation of a $2-billion Brickman/ValleyCrest operation, the largest by far, in the landscape services industry.

KKR, based in New York City, is a global investment firm, specializing in leveraged buyouts. KKR has completed more than $400 billion of private equity transactions since its founding in 1976. Its website indicates that The Brickman Group is just one of about 80 of "Portfolio Partners." KKR is not slowing down. It continues to add "partner" companies, listing 20 acquisitions since entering the green industry by acquiring the Brickman Group in October 2013. 

What does a Brickman/ValleyCrest mean to the larger landscape services industry? That's largely a matter of perspective.

The entry of a huge active investment firm such as KKR into an industry indicates that it views the prospects of what it has acquired - by extension the industry in which it operates? - favorably. (If outside money sees even greater opportunity in our green industry, why shouldn't we, right?)

Some of the managers most intimately involved with either company may look at the merger of the two companies in a different light. More than a few key Brickman and ValleyCrest managers worked in the same markets and, in some cases, competed against each other.

How many are having to take on different roles within the new, larger company? How many are looking for new positions elsewhere? They may not perceive this to be a positive development.

Finally, it's still unclear how the owners of regional and local companies that have been competing against either Brickman or ValleyCrest will see or react to their much larger competitor in terms of marketing, service delivery, price pressures and related competitive issues. This too is a matter of perspective.

In a recent column I opined that I felt that the number of "landscape companies" pegged at about 240,000 by a knowledgeable colleague was too high. I wondered if we should consider part-timers and industry in-and-outers in that number.

Apparently, somebody does. Wow, could it be that I underestimated the size of the industry by about a third!

A kind reader of my recent column emailed me a brief synopsis (actually a sales promo) of an IBISWorld Research Report that claims there are 383,383 "landscaping services" in the United States. The report also notes that the industry employs 878,969 and generated annual revenues of $73 billion in 2013. It adds that the industry experienced 3.7 percent growth from 2009-2014. (For a cool $925 I can get the complete report.) 

Another industry report, this one from a competing trade magazine, claimed that the average revenue for a U.S. landscape company in 2012 was $804,208. I am not sure what "average" means here. I guess, like the Brickman/ValleyCrest marriage, it's a matter of perspective.

If there are 383,383 landscape services in the United States and they do a total of $73 billion, dividing the $73 billion by 393,383, yields $190,410 per company- and this for an "average" of 2.3 employees per company. (The 0.3 guy is the slacker that needs to go.)

But getting back to the impact of a double-in-size Brickman group. If the $73 billion figure is accurate, the Brickman/ValleyCrest operation owns .027 percent of the U.S. landscape services market by revenue.

On the surface that may not seem all that impressive, certainly not dominant. But consider that Brickman does not compete in every service segment of the market. It specializes in service categories that it performs incredibly efficiently, such as commercial maintenance. That leaves the very large residential market as a sizable wedge of the $73 billion landscape services pie.

From the viewpoint of owners with regional or local companies that go head-to-head in the same service categories that Brickman and ValleyCrest targeted, the percentage of the bigger Brickman's revenue and market share is certainly greater than .027 of the total services market. Again, it's all a matter of perspective.