As an investment banker specializing in guiding roofing business owners through the sale of their companies, I recently attended the Rocky Mountain Corporate Growth Conference in Denver. Engaging with over 30 firms that invest in or acquire businesses nationwide, I discovered a notable trend: a strong interest in roofing companies.
Why the Surge in Interest?
The roofing industry has become increasingly attractive to investors, including private equity funds and family offices, due to several compelling factors:
- Predictable and Recurring Cash Flows: Roofing services are essential, with demand driven by factors like weather-induced damage and the need for energy-efficient installations. For instance, regions prone to hailstorms or high winds see consistent demand for both residential and commercial roofing services.
- Fragmented Market: The U.S. roofing market is highly fragmented, with the top five players holding only about 5-10% of the market share. This fragmentation fuels strong merger and acquisition (M&A) activity as investors seek to consolidate and gain market share.
- Growth Potential: The U.S. roofing market reached a value of $23.35 billion in 2023 and is forecasted to grow at a compound annual growth rate (CAGR) of 6.6% from 2024 to 2032.
Implications for Business Owners
Given the heightened interest and favorable market conditions, roofing business owners considering a sale should be aware of the following:
- Increased Valuations: The surge in demand has led to higher valuation, measured by a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Currently, roofing companies are transacting at EBITDA multiples ranging from 5x to 10x, depending on factors such as company size and profitability.
- Active M&A Landscape: The number of roofing M&A deals has increased by over 100% over the past six years, indicating a robust market for sellers.
Preparing for a Successful Sale
To capitalize on these favorable conditions, roofing business owners should consider the following steps:
- Organize Financial Records: Ensure that financial statements from the past 3-5 years are accurate and transparent. This clarity builds trust with potential buyers and can significantly impact the valuation.
- Define Objectives: Clarify your goals for the sale. Whether it’s retirement, funding a new venture, or ensuring the well-being of your employees post-sale, understanding your objectives will guide the process and help identify suitable buyers.
- Assemble an Expert Advisory Team: Engage professionals experienced in M&A transactions within the roofing industry. This team typically includes:
- Investment Banker: To market your business effectively and negotiate favorable terms.
- Transaction Attorney: To navigate legal complexities and ensure compliance.
- Tax Advisor: To optimize the financial outcome and address tax implications.
Conclusion & Next Steps
The current market dynamics present a promising opportunity for roofing business owners contemplating a sale. By preparing diligently and leveraging expert guidance, you can position your company to attract strong interest and achieve a favorable transaction.
If you’re considering selling your roofing business—whether now or in the next few years—having a conversation with an experienced advisor can help you understand your options and maximize value.
Brooks Crankshaw is a Managing Director at Forbes Partners in Denver, Colorado. He specializes in advising business owners on the sale of their company, growing through acquisition, or financing their strategy.