What a merger could mean

April 28, 2014 -  By

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.

Brickman Group

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.”

Bruce Wilson

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

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

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

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

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

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.

Marisa Palmieri

About the Author:

Marisa Palmieri is an experienced Green Industry editor who's won numerous awards for her coverage of the landscape and golf course markets from the Turf & Ornamental Communicators Association (TOCA), the Press Club of Cleveland and the American Society of Business Publication Editors (ASBPE). In 2007, ASBPE named her a Young Leader. She graduated with a Bachelor of Science in Journalism, cum laude, from Ohio University’s Scripps School of Journalism.

9 Comments on "What a merger could mean"

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  1. While it’s exciting to read about very large landscape companies merging, it really means nothing to the small to mid sized regional company. You talk about pricing pressures and agressive pricing strategies but that rarely comes into play in a majority of my bidding models. If my quote isn’t the highest quote that a prospective client receives I feel like I have bid wrong. Small to mid sized companies sell on their experience and, in my case, my degree. Quality costs money. We have all seen how pricing pressure and quotas have caused very large national companies to hemorrhage clients when pricing can’t overcome quality issues. Most of my new clients are signed up because the large national companies were “cheap but horrible” at providing quality service.

  2. Ron Edmonds says:

    I think Erik is mostly correct. A transaction like this is not going to have a lot of negative (or positive) affect on the average small landscape services company, other than the fact that any turmoil always creates some opportunities, both new client opportunities and possibly new experienced employee opportunities. I doubt that this transaction would put downwward pressure on pricing. The combined firm will have a very large debt to pay off and is likely to focus on profitability. The only negative effect I can really think of is that the combined company will likely not be an aggressive business buyer in the term, reducing exit opportunities. The reality is that neither of these companies has been doing many acquisitions recently anyway.

  3. Tony A says:

    In short, if this merge happens you’ll just have one more oversize company run by accountants that have ZERO (0) idea in regards to the industry they are attempting to run. They will over promise and under deliver and continue to pass the buck till failure is just around the corner. Then they will unload their “investment” to some other investors that again will have no idea what they are doing. Once again lowering the standard of the industry for all the poor soles that are lifers. Good luck to the newbies to this industry of horrors courtesy of corporate America.

  4. Chuck Carr says:

    A merger between Brickman and ValleyCrest will have a variety of effects on the landscape industry as a whole. In markets where they compete head to head on a comparable basis, you can expect to see the most obvious of changes such as a combination of operations and staff. This is also where you will see the most employee layoffs, as well as at the corporate offices. Large scale mergers of this nature often result in staff reductions of 10% or more. This could mean 2000 or so displaced employees. These will be in sales, account management, regional and branch level management as well as accounting, HR and marketing within the corporate offices.

    Some of these displaced workers will start their own operations which will lead to increased competition in some markets. There will also be client fallout with some clients not wanting to deal with a monster corporation, or those who are unhappy with the decrease in level of service and quality that often follows a merger or acquisition. Those who remember the TruGreen Landcare roll up of a decade or so ago know what I mean. In short their will be opportuntities for those landscape companies that are sharp enough to see them and act appropriately. For the large national clients of Brickman and ValleyCrest, they will now have one less choice in people to service their portfolios, although some of them may now be able to get all of their locations handled by the single larger company.

  5. Scott T says:

    Seen this on a smaller scale with TruGreen land care. When service master purchased rumor has it they paid in the 500 million mark. Ran it totally into the ground over paying smoke blowing upper management . Making false promises and delivering poor service. Sold to another investment company who has no idea of the green industry. Keep running into the ground poor employee moral cutting labor to show the what they can on bottom line month to month while jeporidizing employees lively hood. I feel proud to work with the family business that really cares about whom you are as a person. Working in the company I do you feel part of the family not like just a number but part of the success stories that will be told for years to come!

  6. ALD says:

    Haven’t we seen this before? Haven’t we heard this before?? Answer: Yes, and it doesn’t bring about one bit of difference. Quit the hype. Overhead is overhead whether huge or tiny. Wasn’t it TruGreen Landcare before? Sloppiest outfit in the nation. Whether huge or tiny, they all get run off after time by the property managers so bring them all on.

  7. quercus says:

    I was part of one of the original LandCare merger companies. Our division was uptimately bougth by ValleyCrest. So I have first hand experence with this process and these companies.

    It will be a souless company , drived by the dollar and the bottom line. Constant increases in profit will be demamded. The lower levels employees will be paid less and less by virtue of little or no increases. The few, VERY few, managers who can wring out a little more money every year will be rewarded. It won’t matter how they do it.

    A poster above said it would be like Home Depot. I would compare it to McDonalds. (BTW Another company that started in Chicago) I mourn for our industry.

  8. Ed says:

    Speculation on all this. if you read it is a percent probability of it happening. It wont hurt the lower ranks unless they are in both areas. Unfortunately you will be creating such a giant monster in the long run it the business.