From Sherwood News:
Natural disasters are making a mess of America. Private equity wants the cleanup cash
The global remediation industry is forecast to grow from $70 billion this year to $92 billion by 2029, and investors are clamoring to get a piece of it
The $200 billion US disaster-restoration industry, which runs the gamut from mold-remediation services to fire-damage repair, has traditionally been run by small, local, independent businesses. It’s how the giants in the industry got started: New York-based Belfor USA bought into the industry when it acquired a small family company founded in 1946 as Quality Awnings & Construction, while cleanup titan Servpro began as an independent painting company in 1967 in Sacramento, California.
Restoration businesses became private-equity targets with the successive disasters of Hurricane Katrina in 2005 and the financial crisis in 2008. Katrina demonstrated the scale and potential addressable market of modern disaster cleanup; two years later, the financial crisis nudged private equity into seeking out businesses with stable cash flows in fragmented industries. The restoration industry is an investor’s dream: it’s replete with mom-and-pop operators who are guaranteed business by the ever-increasing stream of natural disasters.
“This industry is recession-proof and keeps growing,” said JT Kraai, CEO and founder of Exit Strategies 360, which brokers merger-and-acquisition deals between private equity and restoration and remediation firms.
To such investors, hurricanes are not just a disaster but also an opportunity. Post-storm remediation (removing below-the-surface issues like mold or water damage) and reconstruction (repairing walls, replacing carpets, fixing roofs) have attracted growing financing. The cadence of storms like Hurricane Helene, whose “biblical devastation” last week caused up to $5 billion in commercial-property damage, and Hurricane Milton, which has wreaked havoc across Florida, is why the global-remediation industry is forecast to grow from $70 billion this year to $92 billion by 2029.
With the uptick in powerful hurricanes, mold remediation alone is now a billion-dollar business. American homes have become more, not less, likely to grow mold. The widespread switch from plaster to drywall during the post-World War II homebuilding boom gave toxic black mold a petri dish for growth — panels of gypsum sandwiched between two layers of paper offer a better place to incubate than stone and brick — and in the ’70s, the push for energy efficiency and sealing homes meant less air exchange, only making it easier for mold to bloom. Stories of mold toxicity abound, like that of Melinda Ballard, whose Texas mansion became riddled with spores that made her family sick and spawned a multimillion-dollar lawsuit. That and other instances raised awareness of the dangers of mold, and the industry flourished.
Today’s weather patterns will only accelerate this growth. Within 24 hours, waterlogged homes can grow enough fungi to cause coughing, watery eyes, and itchy throats. After Katrina, 46% of homes showed mold contamination. Unlike the sizable home-repair and maintenance industry, there’s not a lot of do-it-yourself enthusiasm for breaking down a waterlogged ranch home. Done by experts, a typical mold-remediation job can cost upwards of $3,000, and the cost of clearing an entire house can go up to $30,000. And private equity is taking notice: Threshold Brands, launched by private-equity firm Riverside, purchased the Pennsylvania-based Mold Medics franchise last year and aims for expansion across the continental US. Tim Swackhammer, the former CEO of Mold Medics, told the Franchise Times that the brand’s original store did $1.45 million in revenue in 2022, a 200% increase from 2018, the year it opened.
Even four years ago, the remediation industry was less consolidated. Last year’s mild winter meant there was a down year for profits, which pulled down valuations and owners’ willingness to sell. Winter is the industry’s busiest season, and fewer cold days meant fewer burst pipes, a common service request, and fewer storms to send tree limbs through windows. But with 2024 shaping up to be busy on the disaster-recovery front — on top of the deadly hurricanes, a colder winter is being predicted — that will likely change. Already this year, a number of investments, like Point 41 Capital Partners’ acquisition of Georgia Water & Fire and Summit Partners’ investment in remediation company Insurcomm, are being discussed as ways to “enter a new and expanded era of growth.”....
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Related, October 13 - "Slash and burn: is private equity out of control?"
