What a merger could mean

With reports swirling of a blockbuster deal that could merge the ValleyCrest Cos. with the Brickman Group—forming a nearly $2 billion national landscape company—landscape contractors and consultants are weighing in on the likelihood the deal will go through and what it could mean for the rest of the market.

Logo: Brickman Group

“KKR has plenty of money to invest and it makes sense that if anybody was going to buy ValleyCrest it was them,” said Bruce Wilson, consultant with the Wilson-Oyler Group and Landscape Management columnist. Private equity firm KKR paid $1.6 billion for Brickman in November. ValleyCrest has been majority owned by MSD Capital, Michael Dell’s private investment firm, since 2006.

“None of these (private equity) guys like to hold on to things they invest in very long,” Wilson said. “They like to invest in something for five or six years and then sell it to invest in something else.”

Headshot: Bruce Wilson

Had it not been for the Great Recession, MSD may have divested ValleyCrest sooner, said Wilson, who is a former ValleyCrest executive but does not have inside information about this deal. He called the potential merger a “game changer” and said it is likely to happen.

“With both (KKR and MSD Capital) having investment bankers involved, chances are there’s not going to be any surprises,” he said, speculating there’s an agreement in place and both companies are wrapping up their due diligence before closing. “It should all be pretty clean, but you never know.”

Green Industry mergers and acquisitions (M&A) consultant Ron Edmonds, principal of The Principium Group, pegged the deal at a “70 percent or better chance” of going through, potentially as early as late April or early May.

Rick Girard, co-founder and CEO of Girard Environmental Services in Sanford, Fla., said he was initially shocked by the news of the pending merger, but in hindsight it makes sense.

“I imagine KKR’s discussions with ValleyCrest began long before they finalized the Brickman deal (in November),” he said, noting so many questions remain, such as will a merged entity stay in the installation business? What brand will it retain? Which company’s structure and culture will be adopted?

Rick Girard

The real question on Girard and other contractors’ minds is how will such a deal affect the average landscape company? Girard and others see more pros than cons coming out of a ValleyCrest-Brickman merger.

“It’s going to do a lot for companies like Girard Environmental, being a regional player here in Florida,” he said. Girard pointed to benefits on the employee, client and M&A fronts.

Eye on employees

There’s much speculation about what will happen in markets where a lot of overlap exists between ValleyCrest and Brickman (such as Atlanta and some markets in the mid-Atlantic and Northeast), but observers are certain there will be consolidation.

“One of the attractions of dong such a large acquisition or merger like this is cutting overhead and streamlining the SG&A (selling, general and administrative) expenses,” Girard said. “I think there’s going to be a fallout of well-seasoned middle to upper management personnel, which is good for companies like ours.”

He named branch managers, regional managers, vice presidents and technical personnel, in particular, as potential positions that could be in jeopardy.

Wilson agreed the duplication could free up some talent. It could mean new startups led by ex-ValleyCrest or ex-Brickman employees. Additionally, some folks may be laid off or will opt to leave.

“There will be people who don’t want to be in a big company under those kinds of pressures,” Wilson said. “It’s good for smaller companies if they can get that kind of talent.”

Martin Cleary

Martin Cleary, president of Danville, Calif.-based Cleary Bros. Landscape, agreed such a “mega company” may have difficulty retaining employees.

“Many of the people that are drawn to landscaping have a passion for the craft,” he said. “If a company’s primary mission is delivering profits, this may work against what motivates good people.”

Jason New, vice president of garden management at Southern Botanical in Dallas, concurred, noting the differing cultures of the companies may be a reason for some professionals to walk away.

From an outsider’s perspective, New identifies ValleyCrest as having a “numbers-driven culture,” operating on individual performance, whereas Brickman is a “team-driven culture.” Adding to that, he pointed out the companies have “different mentalities of people,” with ValleyCrest being headquartered on the West Coast (Calabasas, Calif.) and Brickman on the East Coast (Rockville, Md.).

Matt Owens, vice president of landscape operations for PGC Landscape in Urbana, Md., is one competitor who will be on the lookout for new hires.

Jason New

“I do think that with the culture merge there will be fallout of key employees,” he said. ” Maybe we can learn from this and pick up a few key employees that closely match our values, career opportunities and general success of our business model.”

Client factors

In addition to employee repercussions, Girard predicted fallout among clients.

“On the customer side, even a small drop-off in their client base would be a big pickup to local and regional players,” he said.

Cleary said he anticipates a merged entity would gain a stronger hold on national corporate accounts but could lose out among smaller, regional accounts and homeowner associations that value a “trusted adviser” relationship over price alone.

Whether a merger would help or hinder market prices is uncertain.

Matt Owens

“I’ve never quite grasped why the big boys keep driving prices down, devaluing their services,” Owens said. “I’m hopeful that if the merger happens they can raise their prices and put more on the bottom line. And so will we.”

New expects a merged Brickman-ValleyCrest to control the market more from a competitive angle.

“Their pricing is going to be the pricing to beat or the pricing to set the standards by,”  he said. “I anticipate they’re going to figure out what the market is to take up more of the market share, so they can beat more companies on bids.”

To that end, Wilson said improved pricing practices aren’t a sure thing. He said a bigger company with lower overhead could mean more aggressive pricing. Still, he agreed the consolidation is an open door for smaller companies to gain an advantage.

“It’s an opportunity for independent companies to tell their customers, ‘You’re not going to get very personal attention from a billion dollar company,'” he said. Another selling point for smaller companies, Wilson said, is doing business with a local owner/operator.

“When I was at ValleyCrest, the smaller companies sold very effectively against us that they were smaller and closer to their customers,” he said. “If you leverage that and don’t get scared,  you can really compete. There’s no reason to be afraid of a big company.”

Vote of confidence

If the deal goes through, it will confirm a continued interest in the landscape industry (primarily the commercial maintenance sector) among private equity investors.

“It’s good for the industry that there’s that much Wall Street money chasing it,” Wilson said, adding it can only help attract more people to the industry as a career opportunity. “It will help get more kids into the college landscape programs, which is what the industry needs.”

Ron Edmonds

Edmonds sees the investor interest as a boon to regional landscape companies, as other private equity firms may seek to buy into the industry at that level.

Both Cleary and Girard said their firms have seen an uptick in inquires from brokers and private equity investors this year.

Wilson said he expects a KKR-owned national landscape firm to buy up more companies, calling it “good for owners who want to exit in the next few years.”

Edmonds disagreed. “Much of the acquisition activity in the past few years has been either to ‘add pins on the map’ (completing a national network) or strengthening locations where a company’s operations are weak,” he said in a blog post. “There are few significant markets in the U.S. where a combined Brickman-ValleyCrest would not have a strong operation. Of course, they will be all about exploiting exceptional opportunities if and when they arise.”

Additional reporting by Sarah Pfledderer.