Looking back at 2019, Lawn & Landscape has reported on more than 20 mergers or acquisitions this year alone, and by the time you’re reading this, that number will have increased.

The success this industry has seen over the last several years has also caught the eye of outside players like private equity firms, who know one thing is for sure: there’s money in mowing.

“Knowing that you can actually develop a game plan to make an acquisition build value by improving the operations of the business and adding acquisitions and then successfully exit within a reasonable timeframe…is a message to all the other investors out there that landscape is probably a pretty good investment,” says Ron Edmonds, consultant with the Principium Group.

We talked to a few green industry consultants to find out what’s keeping the business going and if the trends will continue into 2020.

Where’s the money?

“There hasn’t been anything like this before,” says Tom Fochtman, CEO of Ceibass Venture Partners. “In the past five years, there’s never been a better time to be a seller of a landscaping company.”

At the moment, there are about 20-25 active buyers in the industry, Fochtman says. The buyers are backed by private equity companies who have a good amount of capital to burn, and they want to spend it on landscaping companies. “There’s never been so much (money) available,” he says.

Jeff Harkness at Three Point Group says the number one force driving this M&A surge is private equity companies still raising capital. “(The private equity companies) have people who want to invest,” he says.

The public companies, like BrightView, also have shareholders who want to see them grow in size and revenue because that only increases their price per share, says Greg Clendenin of Clendenin Consulting.

“They care about their company’s value in the eyes of investors right now, and investors are buying to grow the companies,” he says. Fochtman says while private equity firms see that it’s a prime market to invest, the firms are likely invested for the profit margins that come along with the type of revenue streams the industry offers.

“These private equity guys are in it purely for the profit and they're taking the profit and getting out,” Fochtman says. And, while it’s a predictable move, he says the industry is seeing younger companies, about five to seven years old, starting to sell as well. “There's a couple examples of these recently formed landscape holding companies now selling, so the market's still pretty prime.”

With the influx of investors coming in, Edmonds says the demand by investors is currently higher than the supply of landscaping companies readily available to buy, which means some of the appeal for these investors has shifted a bit. It’s also opened the door to competition between investors. Harkness says companies up for sale have the benefit of weighing different offers before making any final decisions. Multiple offers are the norm now for a company on the market.

Investors are looking for recurring revenue, as it’s a proven and reliable source of business. In the green industry, this comes in the form of commercial maintenance, a precedent that Fochtman says was set back when Brickman and ValleyCrest (now merged as BrightView) were purchased, putting commercial landscaping on the map. Clendenin says he’s typically heard buyers asking for companies with a 70 percent maintenance and 30 percent design/build split.

“There are transactions being made where a clear percentage of the business that is pure maintenance is lower than what you might've seen sometimes in the past,” Edmonds says. Edmonds referred to a deal that happened last year that ended up involving a company that was more design/build than maintenance, but still proved to be well worth it. “At one point a few years ago, you wouldn’t have seen anything like that,” he says.

And, going along with the changing tides of the M&A market, he says years ago investors didn’t put much value into the snow industry – something that is also starting to shift as the market becomes more saturated with people ready to buy. “The best managed snow companies, along with that landscape maintenance component, is much more attractive than it used to be,” Edmonds says.

The overall market of the industry is also highly fragmented, Harkness says. Combined with the recurring revenue in commercial maintenance, investors are starting to see a return of four to five times their investment – typically two to three times the investment is considered “good” he says.

Ready your business.

Even if you’re not thinking about selling, you should be preparing your business to sell, says Clendenin. Whether you follow through with a sale or not, readying your business will only cause growth.

“If you get in shape to sell in order to be the most attractive, you’ll grow,” he says. “(Once you do that) you’ve really got your foot on the gas and you'll do better now, but you'll be more attractive as an acquisition later, too.”

With that in mind, Harkness says a lot of companies aren’t where they need to be in order to secure a solid sale based on the age of the business and its earnings alone.

“I don’t really think the luster is going to fall off of commercial landscape anytime soon. It may just slow down a little bit.” Tom Fochtman, CEO, Ceibass Venture Partners

The elephant in the room.

If you’ve watched the news you know we’re supposedly on the brink of another recession. With money moving in the green industry, the experts don’t seem to think the movement in the market will take a hit. In fact, most agree that this industry is, in a way, resistant to the downfalls of an economic recession.

“I don't really think the luster is going to fall off of commercial landscape maintenance anytime soon,” Fochtman says. “It may just slow a little bit.”

Edmonds says his long-term outlook for the industry is good, and he sees activity increasing within the next five to 10 years. He’s also optimistic about the market surviving the next possible recession. “In my opinion, one of the reasons that there's this been as much investment in the industry as there has been, is that the industry performed markedly better during the Great Recession than many people would have thought that it would,” he says. It’s no surprise, either, that the appealing part of the industry – the recurring revenue – is what will bolster the market in any sort of economic recession.

“Homeowners will cancel their lawn service and mow their own lawn when things get really tough,” Fochtman says. “But the building owner is not going to start mowing his own lawn…so commercial just has the aspects and those dynamics to it that make it a little bit bulletproof.”

And, there may be a silver lining that comes out a potential recession. Fochtman says he thinks we will see some interest spike when it comes to the residential maintenance segment of the industry. It will be a bit more challenging because of how highly fragmented it is, but Edmonds echoes his sentiment as well.

“I think we will see some figures emerge in the lower end of the residential market, which a lot of people thought would not happen,” Edmonds says. “There’s a lot of money to be made there.” A potential shift of the spotlight to residential maintenance could be due to the marketing efforts those companies push.

Advertising weekly mowing programs can lead to building up a dense customer base, which Edmonds points out circles back to the allure of recurring revenue. He admits it would take a larger player to invest in that type of business, but sees it as a viable possibility.

Fochtman says, “There’s still going to be a lot of capital available and a lot of good deals to be done.”

As the green industry continues to evolve, what will define the way we frame the “landscape economy?” The nature of our business, labor intensive tasks and production and cost efficiencies are all under constant pressure. In conversations across our industry, from tailgate meetings to board rooms as landscape companies prepare their strategic plans for 2020 and beyond, speculation about the impact of automation and artificial intelligence, demographic shifts, operations optimization and smarter workplaces are front and center.

Of these, according to future ready conversations I’m having with clients, the two most powerful disruptors are private equity and automation.

Private Equity. Private equity’s impact on our wider industry culture can’t be underestimated. On the plus side, investment can be an opportunity for growth and have a measureable benefit to the companies in which it invests. But to an industry built largely by family entrepreneurs, PE-owned companies come with a shift in company culture and less time to adapt to change. The result is a new industry model, with fewer independently-owned companies propelled by a strong sense of purpose competing with equity-backed companies driven by a strong sense of EBITDA.

As we manage the economic impacts of these shifts, how can both landscape business models respond to competitive pressures?

Larger companies have competitive advantages if they:

• Implement scalable training platforms in a more cost-effective manner than smaller companies
• Create purchasing power due to their higher volume of purchases
• Offer distinctive career path opportunities
• Implement sophisticated marketing and communications strategies
• Develop the ability to serve wider footprint via national/regional accounts
• Remain agile

Smaller, independent companies can compete if they:

• Engage in transformative thinking
• Define and capitalize on their unique attributes
• Emphasize their family culture, which many employees find attractive
• Sustain an ownership ethos
• Maintain a strong focus on work quality, employee and customer satisfaction
• Sustain and leverage a relationship- and value-based culture
• Brand their sense of community, an esprit de corps, for high employee and customer retention
• Have a strong readiness mindset
• Remain relevant

Automation. Smart systems, robotics, artificial intelligence, and personal and professional effectiveness tools continue to change the way we deliver our services, plus the way we forecast, track, measure and manage data. Additionally, and perhaps more importantly in terms of human cost, a digitally-driven organization will demand a different set of skills and a well-trained workforce that will support higher productivity.

Autonomous equipment and GPS-enabled mowers are being tested by many contractors and manufacturers’ investment in advanced research and development will continue to reconfigure machines and equipment.

The central question around technology is: when to buy it and how to apply it. Being first is a huge advantage. The “wait and see” types, who hesitate or are uncertain about cost and level of difficulty, will fall behind.

As employees work in more decentralized, cloud-driven businesses, with access to a greater menu of options and approaches, a greater emphasis will need to be placed on learning to help all employees work more effectively.

Lots of software and apps are being tried and implemented. Some work, others struggle to be incorporated. The sheer volume of options require that companies have a solid understanding of what the particular technology can do, how it will impact their organization and how they can leverage a digital mindset to remain competitive.

In a connected world, customers expect fast response, follow through and instant communication. Some companies are getting really good at this and others are lagging. In the future, the mindset we all need to have is: “fast beats slow”. L&L

Contact Bruce Wilson at bwilson@giemedia.com

Remember the good old days … during the Recession of 2008. Today, many snow and ice professionals look back on that time fondly because the dip in the US economy provided this industry with a surplus of available labor. People were eager to work.

Fast forward a decade and the professional snow and ice industry needs people – desperately. Nearly every contractor is trying to crack the code on how they’ll get fully staffed for Winter 2019-20. They’re holding open-house events, scouring social media and offering financial incentives to secure not only frontline sidewalk crews, but plow truck drivers, loader operators and even crew supervisors.

For seasoned snow contractors like Brent Teddy, the president of Teddy's Lawn & Landscape in Livonia, Michigan, each season seems to be a bit more challenging to find enough bodies to fully populate his winter operation.

“It’s crazy,” Teddy says. “Sure, we need shovelers for sidewalk work, but we’re also trying to find good area managers, too.”

Even with a cooling of the US economy and an upward adjustment to the unemployment rate, snow contractors must realize that there’s been a fundamental change within the work force and things may never return to how they once were, says Fred Haskett, consultant at the Harvest Group and regular Lawn & Landscape magazine contributor.

“I was talking to someone the other day who said they looked forward to the (next) recession so that they would have (an available labor pool) again,” Haskett says. “I looked them right in the eye and said: ‘Ain’t gonna happen.’

“If we don’t recognize what has happened and begin to change our ways, even if we do have a recession or (an economic) correction and unemployment goes up three to four points, that work force isn’t coming back unless we change our ways.”

Brad Caton, founder and CEO of Invictus Professional Snow Fighters, which operates in Vancouver and Seattle, treats attracting and retaining labor as seriously as he does sales. Dealing with the labor question is a full-time endeavor at the company, but this full-time procurement approach alleviates much of the preseason stress contractors have to manage when staffing their winter crews.

“If you can put in the effort... this shouldn’t be a problem,” Caton says. “The (available labor) is out there. You just need to get to them before someone else does.”

One recent trend Teddy has observed is labor looking for long-term financial commitments from snow contractors, which is forcing him to consider placing seasonal labor on the payroll as part-time employees to secure them throughout the winter.

“People are living paycheck to paycheck,” he says. “And if you can’t pay them (consistently) then they’re out looking. So, you’re left considering whether to pay them a minimum salary every week in order to keep them.”

Another is competing for workers against other labor-intensive industries that pay temporary seasonal help cash “under the table.” Teddy explains a potential labor pool of laid-off seasonal workers is available, but they prefer to be paid off the books in cash to avoid interfering with their unemployment benefits.

Keeping good operators, drivers and hand laborers has become more difficult in the last few years, says Stacey Hinson, director of sales at Snow Systems in Wheeling, Ill. However, winter’s unpredictability exasperates this labor problem.

“If we have too long of a period with no snow during the winter months, (seasonal workers) lose interest and then are not available when it does snow,” she says. “We have to hope for consistent snowfalls each month to keep them on board.”

Thinking out of the box financially has helped mitigate this problem. In addition to paying a very competitive rate on time, Snow Systems pays seasonal managers a small salary – sort of a small paycheck – to be ready and available.

Financial incentives are also key to Invictus’ approach to attraction and retention. Caton says he aims to compensate his service providers with the highest rate possible – around 10 percent more than his competitors are paying in the market.

“This can get tricky, though, because this (compensation) mean a higher price for our customers and is reflected in our contracts,” he says, adding that he’s able to ensure clients that he has the labor force necessary to fully service the contract.

So, how do you bridge this labor gap?

First, recognize what has worked in the past most likely will not work for you in this current labor environment, says the Harvest Group’s Haskett. Contractors need to understand what the priorities are of the work force that they’ll be engaging with and attempting to secure, whether seasonally or permanently for the long term.

“What worked 10 to 15 years ago will not work now and won’t work in the future,” Haskett says. “We have to change our ways, and there’s a whole variety of things that need to be done with that.”

“If you’re putting all of your eggs into the recruiting basket, and you’re not paying attention to the changes you need to make for the long haul, then all you’re doing is continuing the churn,” he says. “You have to focus on what it takes to keep people in place, focused on improving their job skills, to keep them happy and provide them a with a good positive experience. This will not only help with retention, but also with recruitment.”

Many snow contractors feel pressure to use premium wages as a means to secure not only full-time labor, but also seasonal workers. While wages have been on a steep incline, Haskett warns snow contractors that, at the end of the day, it’s not just financial compensation.

“It’s not all about money,” he says. “It’s about experience and engagement.

“If you’re not working on the cultural aspects (of your company) and creating a better environment for your people – both existing and future – you can throw a lot of money at a lot of people and it’s not going to give you a solution.”

Haskett suggests snow contractors offer prospective employees a clear career path at their company. This can be done in the form of a documented career ladder, where each rung represents the next level within the organization and what you need to do to successfully reach that level.

“That way you can have a document that says here’s where you’re at today and here are the three to four things you must accomplish to apply for that next-level job,” he says.

Surprisingly, those contractors who cite the inability to attract and retain quality labor were not sheepish on their attitude toward growth, with 76% of respondents anticipating growth for Winter 2019-20. These figures nearly matched the industry average for anticipated growth.

Furthermore, of those companies where labor is the top concern, more than 60% anticipate at least 10% growth heading into next spring. The “sweet spot” for growth seems to be around 7% to 10%, according to the data.

Surprisingly, 15% of this segment of snow and ice professionals anticipate growth between 16% and 20%.

Not surprising, but more than 80% of respondents who indicated labor as their top management worry also indicated they would be susceptible to acquiring labor-saving equipment for their snow and ice management operation. That number is 5% higher than the industry average, according to the data.

This robotic era may be upon us. Michigan snow contractor Brent Teddy says he’s already seeing robotic mowers in the landscape industry, and there are some companies introducing robotic versions for snow and ice management work.

“What I’ve seen is mostly geared toward sidewalk work, so we may only be a few years away from autonomous (robots) handling this aspect of site work,” Teddy says. “However, I think we’re probably light years away from automated plow trucks clearing parking lots.”

Management experts suggest company culture has a direct impact on your ability to retain everyone in your ranks down to the newest individuals on the shovel crew. Fred Haskett, a consultant at the Harvest Group, advises snow contractors need to dedicate time to become well versed on the priorities of not only their existing workforce, but of those they’re seeking to hire.

“Engagement is a big thing with the current labor force,” Haskett says, adding this starts with a well-established and defined company culture. “They want engagement with the companies that they’re working for and engagement with their supervisors … They want a social relationship with their (superiors).

“We have to change the way we look at culture and approach it from (the worker’s/employee’s) point of view,” Haskett adds.

Elevated levels of competitive market pressure seem to be easing some for North American snow and ice management contractors. According to recent and historical State of the Industry data, contractors reporting elevated levels of competitive market pressure have been lessening, with the data reflecting a 25% drop from 2012 to 2019.

And while those snow professionals reporting an improvement in the competitive level in their market didn’t necessarily gain favor at the same rate, the data points to those contractors reporting a healthy amount of competition in their respective markets as absorbing the difference.

The annual sit-down. The 30-day checkup.

Employee evaluations can get a bad rap when they’re delivered TPS-report style – think the movie Office Space and a stuffy room with The Bobs. How motivating is it to hear about everything that didn’t go right? And owners struggling to retain employees might hesitate to even go there.

But done well, employee reviews can empower team members to worker harder, smarter and toward the company’s goals. Plus, they don’t have to be as traditional as the old sit-down.

For example, weekly truck checks are one important component to reviewing employees’ commitment to Peak Landscape’s core values, as a landscape maintenance firm focused on professionalism. While a clean truck might not directly impact the curb appeal of a client’s property, it does set a precedent for being respectful, responsible and accountable – and those are qualities that clients look for in a service provider, points out president Brian Connors.

“We make sure our guys clean their trucks at least weekly – wipe them down, vacuum,” says Ryan O’Connor, operations manager, Peak Landscape, Truckee, Calif.

On weekends, O’Connor spends more time ensuring each truck is properly organized. “I go through the side bins, the racks and make sure trucks are stocked,” he says.

The truck checks are part of a 10-item checklist Peak Landscape covers on its employees’ performance reviews. Other bullet points include attendance, dedication, presentation (clean uniform), safety and communication. O’Connor and Connors assign a 1 to 10 rating to each key point. An end score is tallied and averaged during the season, and bonuses are paid out as a percentage of employees’ scores. So, if a crew member earns an average of 70 points, that’s 70 percent of the bonus potential.

“We keep good notes with dates, and that way if an employee says, ‘I was in uniform that day,’ we can identify the day he did not wear his uniform to work,” O’Connor notes, adding that documentation keeps evaluations constructive and detailed.

Plus, there are opportunities for employees to “make it right” and recover bonus dollars if mistakes happen, O’Connor says. “One employee yesterday pinched the taillight of her truck while backing up,” he says. “She came directly to me after work, very upset, and said, ‘I’m not going to get my bonus this year.’ She explained the situation and I said, ‘Let’s see if you can find a replacement on your own.’

“The more employees can handle on their own, the less it will impact their bonuses,” O’Connor continues. “She is in the process now of handling it and asked me if she could get an extra 24 hours to check with another place to get the replacement. I’m fine with that.”

The effort shows accountability and commitment. “I’m more than willing to work with her,” O’Connor says.

Tying bonuses to employee evaluations emphasizes the importance of the company’s 10 expectations, Connors says. “It helps create a culture of accountability, and if we don’t have that culture and every truck is beat up and equipment is breaking in the field, that takes away from our professional image,” he says.

Performance reviews create career ladders for employees – and they encourage accountability. Consistent evaluations help team members know where they stand. Companies that establish a system for reviewing performance and stick with it see results: more productivity, better quality work and, ultimately, higher profitability.

“Reviews are for the good of the team,” Connors says.

Setting Expectations.

“No surprises” is the key to delivering performance reviews, Connors says. “Our employees are very aware of the process,” he says, noting that a structured schedule for reviews and the 10-point list of expectations keeps the process transparent.

In fact, understanding the review process is part of the employee orientation. “They see the 10 bulleted items and they know what will affect their bonuses,” Connors says. “When we do the initial paperwork at the beginning of the season that outlines their pay and bonus potentials, those 10 bullets are on the next page. Every season, we say, ‘This is a reminder of what you are evaluated on. These are the 10 things you need to focus on every day.’”

Ben Carruthers, owner of Carruthers Landscape Management in Dallas, Texas, introduces his review system to employees upon hiring when employees work through the training program. Employees are reviewed by their supervisors 30 days after their start date, and again after 90 days on the job. After this, team members receive annual reviews that address aptitude. “Their reviews are performance based: Did you meet the requirements? Did you exceed the requirements?” Carruthers says.

Managers at Carruthers Landscape Management are evaluated on how well they teach crew members – so, it’s all about listening and communication skills. And, Carruthers stays on top of reviews by making the task a checkpoint on his monthly Key Performance Indicators (KPI) spreadsheet, which he reviews and completes monthly.

Generally, review season begins in November at Carruthers Landscape Management after the landscape maintenance schedule slows down. “We rely on the performance evaluations to give us a chance for employees to know what they can work on and accomplish if they come back the following season,” he says.

Ultimately, executing reviews requires collaboration and organization. That’s why Kyle Germann of Green Lawn Specialists in Lewis Center, Ohio, first meets with the HR manager and employees’ supervisors to discuss employees’ performance. “We make the evaluation, and we also try to include everyone in the review when we bring in the employee to discuss it,” he says.

Employees at Green Lawn Specialists are reviewed 30 days after they are hired, and a pay raise is tied to performance at this point. If a worker is falling short, the review will highlight issues to resolve to earn the pay raise. “We say, ‘Here are the things that are holding you back, and if you can get this done, we can move forward,’” Germann says.

After the initial 30-day review, team members are evaluated at the end of the season. Germann keeps track of when reviews were delivered by maintaining a spreadsheet that lists employees names, current pay rate and pay history. The sheet also includes the date workers signed their employee handbooks and confidentiality agreement. And, one tab is dedicated to reviews so he can log dates and stay on track.

“We also make sure to look at our reviews every year to see if we need to make adjustments,” Germann says, relating that working with an outside consultant to build a review system helped create a framework and system for reviews, bonuses and pay increases. It’s all about consistency – and making sure everyone on the team knows where they stand.

“It’s critical for employees to know where they are at, because if they aren’t sure or have questions, that creates more anxiety for them,” Germann says.

Speaking Up.

A three-part list encourages thoughtful conversation during reviews at Green Lawn Specialists. “The most important part of the evaluation is on the back when we list what they should start doing, what they should stop doing and what they should keep doing,” Germann says.

For example, if a technician is working toward a foreman position, Germann might note that the crewmember should start practicing management skills and taking the lead – giving other workers helpful suggestions. And, under the “stop doing” category, attendance might be red flagged. “This particular technician had a problem with missing some days,” he says. As for keep doing, the employee has a great attitude and work ethic.

The point is to get employees to share their concerns and goals. “It’s not always easy to get employees to talk during employee evaluations, and a lot of times they won’t tell you there is a problem until it is too late to fix it,” Germann says. “This is why we make sure to give them opportunities to give feedback by asking open-ended questions.”

After reviewing the three questions, he might ask a technician, “How’s it going with the foreman?” Then, inquiries can move from specific to the bigger picture, such as, “Where do you see yourself in one year?”

Always, Germann works to keep the tone positive.

(Employee evaluation) helps create a culture of accountability, and if we don't have that culture and every truck is beat up and equipment is breaking in the field, that takes away from our professional image. ...we want to stay at the head of the pack." Brian Connors, president, Peak Landscape

“You always want to be careful with your negatives,” Germann says. “The biggest problem for some employees is taking constructive criticism.”

Providing that constructive feedback can be a challenge for supervisors and owners, Germann adds. “The main thing is to always be looking forward,” he says. “Here is what happened, here is what I would like to see, here is what we want to see moving forward.”

So, rather than focusing on the missed days of work, Germann will highlight the foreman opportunity and note that dependability and expected attendance are necessary to achieve the position. Rather than focusing on what the crewmember isn’t doing, the review touches on the point but explains how correcting those issues can result in more responsibility and the compensation that comes along with it.

Germann says the company has learned that employee evaluations must be specific. “If we tell an employee he is not being detail-oriented enough, we’d get the feedback, ‘Where?’ and, ‘When did I not pay attention to detail?’ So, we make sure we outline exactly which job it was and what happened.”

So, maintaining records is essential so reviews can be informative, constructive and pinpoint exactly what employees should address to achieve goals. “If a worker’s efficiency is below average, we show them the numbers that explain how and why,” Germann says.

Extras for Effort.

Employees who meet job expectations at Carruthers Landscape Management earn a wage, but those who go above and beyond get a bonus check. Carruthers says the quarterly incentive can range from $300 to $600. Salaries are adjusted based on performance and skills. As employees advance, they win opportunities to enhance their pay. “The bonus program is in addition to that,” he says.

The company has worked through some trial and error to find a bonus system that’s fair and consistent. At first, Carruthers offered bonuses annually. “But that didn’t work because you can be a hero one year and then the second year, you’re just OK, and the third-year performance tended to decline,” he says.

Basically, many employees simply weren’t getting a carrot often enough to stoke their appetite for excelling beyond the standard. So, Carruthers tried a “goal card” system that require rating employees on various factors. “But the ratings could depend on how you felt when you woke up in the morning and who you talked to before you showed up at a meeting,” he says.

"It's critical for employees to know where they are at, because if they aren't sure or have questions, that creates more anxiety for them." Kyle Germann, Green Lawn Specialists

A “yes” or “no” system worked better – did employees fulfill expectations or not? Employee performance based on set standards is figured monthly. But bonuses are paid out quarterly. “That way, you could earn the bonus two months and not get it the third, but the poor month would get cancelled out,” Carruthers says. This system provides more flexibility for supervisors and branch managers.

Tying bonuses to performance is an important motivator, Connors adds. “If we were to just do a review and not have it tied to a carrot, I think the evaluation would be taken differently,” he says, explaining why Peak Landscape adopted its point system. Also, he says that employees who tend to earn 70 percent of their bonus or less tend to weed themselves out, which helps the company’s overall performance.

“Employees know they need to work hard throughout the year to get the bonus,” Connors says. And, that hard work has made the company more successful, he points out. “With the accountability, it has helped get us a more professional image.” L&L