Business Services Industry Update: Cleaning Services

Transcription

1 Business Services Industry Update: Summer League Park Advisors

2 Contract Cleaning Service Revenue ($ in millions) Business Services: Sector Outlook From 2005 to 2015, the U. S. contract cleaning services sector experienced annual growth of 2.6%. Contract cleaning services consist of interior cleaning, floors and fabrics, exterior cleaning, swimming pools, and restoration and remediation. Primary factors impacting commercial and residential cleaning services growth are the number of occupied buildings, floor space in use, formation of new businesses, availability of vacant commercial space, size and growth of non-residential floor space, discretionary income, and employment levels, and general economic conditions. Trends in economic growth directly correlate to cleaning services, as growth spurs on new business formation and increases household disposable income; which in turn leads to a desire to hire more outside services. Regulatory factors play a large role in contract cleaning services operations. Both federal and state labor laws influence the cost of labor by requiring that workers be classified as an employee or contractor. Cleaning services are also limited in how they market and solicit customers due to regulations on consumer privacy, the collection of data, and telemarketing. Following the Do-Not-Call Improvement Act of 2007, consumers can bar telemarketing calls to their phone numbers. Furthermore, the EPA and Occupational Safety and Health Administration ( OSHA ) regulate the disposal of cleaning products and the safety of customers and employees exposed to them. OSHA has placed standards on equipment designs as a result of rising incidences of reported work-related musculoskeletal disorders and back injuries caused by using products such as brooms, mops, and vacuum cleaners with poor ergonomic designs. Some cleaning services companies face regulations involving training and licensing procedures as well. Initiatives can range from education on various cleaning products and chemicals, to educational programs for inspection, cleaning, and restoration professionals. Nearly all market segments use cleaning services, driven by the required upkeep of residential and commercial buildings alike. Therefore, the ongoing steady growth in these markets proves favorable to the cleaning services industry. Market potential for the industry faces limitations with the maturing trend of outsourcing in some markets and the high-level of price competition among consumers. Non-residential markets, which include institutional, office, commercial, industrial, and other non-residential facilities, generate the highest demand for cleaning services by revenue and are forecasted to grow 3.0% annually through 2020P. U.S. Contract Cleaning Service Revenue Trends For the Years Ended December 31, $60,000 $48,000 $36,000 $24,000 $12,000 $ Source: Freedonia While smaller than the non-residential market, revenue for cleaning services for the residential market is expected to outpace non-residential market growth at 3.8% annually through 2020P. The higher growth is due to an increase in disposable income and dual income houses, lacking available time to personally complete maintenance and cleaning activities. The residential segment is more volatile however, as services are typically optional. U.S. Contract Cleaning Revenues by Market Residential 21% GDP Revenue 2015 Transporation & Other 1% $20,000 $16,000 $12,000 $8,000 $4,000 $0 Non-Residential 78% Source: Freedonia Gross Domestic Product ($ in billions) 1

3 Summary Statistics U.S. Contract Cleaning Revenue by Type Interior Cleaning: 2015 Market Size $42.3 billion 2015/2009 CAGR 2.9% 2020P/2015 CAGR 3.2% Floors & Fabrics: Restoration & Remediation Swimming Pools 2% 4% Exterior Cleaning 5% Floors & Fabrics 10% Other Types 5% Market Size $5.9 billion 2015/2009 CAGR 2.1% Interior Cleaning 74% 2020P/2015 CAGR 3.3% Exterior Cleaning: 2015 Market Size $2.7 billion U.S. Projected Contract Cleaning Revenue by Type For the Years Ended and Ending December 31, P ($ in millions) 2015/2009 CAGR 3.1% 2020P/2015 CAGR 2.1% Swimming Pools: $80,000 $70,000 $60,000 $50,000 Interior Cleaning Exterior Cleaning Restoration & Remediation Floors & Fabrics Swimming Pools Other Types 2015 Market Size $2.3 billion $40, /2009 CAGR 2.0% 2020P/2015 CAGR 3.5% Restoration & Remediation: $30,000 $20,000 $10,000 $ P 2017P 2018P 2019P 2020P 2015 Market Size $1.5 billion 2015/2009 CAGR 3.7% 2020P/2015 CAGR 3.2% Other Types: 2015 Market Size $2.8 billion 2015/2009 CAGR 3.2% 2020P/2015 CAGR 3.4% U.S. Projected Contracting Cleaning Revenue by Market For the Years Ended and Ending December 31, P ($ in millions) $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 Non-Residential Residential Transporation & Other $10,000 $ P 2017P 2018P 2019P 2020P Source: Freedonia 2

4 Public Company Comparison Publicly-traded business services companies have generally outperformed the broader equity market (i.e., S&P 500 Index) trends over the past five years with the exception of freight services. However, the cleaning services market index performs more towards the median of business services companies in Q As of July 8, 2016, the median publically tracked cleaning services company was trading at 98.5% of its 52 week high. Public Relative Stock Price Performance As of July 8, 2016 company valuation multiples show steady growth as the industry continues to recover from the 2007 to 2009 recession. The average Earnings Before Interest, Tax, Depreciation, and Amortization ( EBITDA ) multiple for business services companies was 16.2x as of July 8, Tracked publicly-traded business services companies grew their revenue base throughout the past three years at an average annual rate of 7.6%. 1-Year Historical Stock Performance For the Period Ended July 8, 2016 Price as of 52 Week 07/08/16 High Low % of High Freight Services CH Robinson Worldwide Inc % JB Hunt Transport Services Inc % Penske Automotive Group, Inc % United Parcel Service, Inc % Median $79.72 $82.77 $ % Community Health Systems, Inc. $12.89 $63.70 $ % HCA Holdings, Inc % Humana Inc % UnitedHealth Group Incorporated % Universal Health Services Inc % 140% 128% 116% 104% 92% 80% S&P 500 Index Freight Services Tech Enabled Services Median $ $ $ % Chemed Corp. $ $ $ % Comfort Systems USA Inc % Lennox International, Inc % Rollins Inc % Median $85.46 $91.37 $ % Ameriprise Financial, Inc. $90.84 $ $ % Citigroup Inc % Intuit Inc % The Charles Schwab Corporation % Visa Inc % Median $66.41 $95.09 $ % Tech Enabled Services Alphabet Inc. $ $ $ % Groupon, Inc % Pandora Media, Inc % TripAdvisor Inc % Zillow Group, Inc % Median $36.86 $36.90 $ % ABM Industries Incorporated $36.82 $37.86 $ % Aramark % Compass Group PLC % Ecolab Inc % Sodexo S.A % Median $36.82 $37.86 $ % 5-Year Historical Stock Performance For the Period Ended July 8, % S&P 500 Index Freight Services 250% Tech Enabled Services 200% 150% 100% 50% Market Data Provided by S&P Capital IQ : NYSE:ABM, NYSE:ARMK, LSE:CPG, NYSE:ECL, ENXTPA:SW 3

5 Business Services Industry Analysis Industry Financial Analysis As of July 8, 2016 ($ in millions) YoY Change Last Twelve Months LTM Margins LTM LTM Margins Revenue EBIT EBITDA Gross EBIT EBITDA Revenue Gross EBIT EBITDA Freight Services CH Robinson Worldwide Inc. 13, % 6.6% 7.0% (3.1%) 11.6% 9.1% 9.3% JB Hunt Transport Services Inc. 6, , % 11.6% 17.1% 1.4% 5.0% 6.5% 7.2% Penske Automotive Group, Inc. 19, % 2.9% 3.3% 7.6% (1.2%) 6.5% 6.5% United Parcel Service, Inc. 58, , , % 13.3% 16.9% 0.9% 11.6% 24.5% 20.2% Median $16,437.9 $801.9 $1, % 9.1% 12.0% 1.2% 8.3% 7.8% 8.2% Community Health Systems, Inc. $19,525.0 $1,327.0 $2, % 6.8% 11.7% 0.2% (3.0%) (27.1%) (15.0%) HCA Holdings, Inc. 40, , , % 14.9% 19.7% 4.8% (0.7%) 2.9% 2.8% Humana Inc. 54, , , % 3.9% 4.4% 4.1% (11.9%) (8.0%) (8.9%) UnitedHealth Group Incorporated 165, , , % 6.8% 7.7% 20.0% (9.3%) 1.2% 3.5% Universal Health Services Inc. 9, , , % 13.9% 18.3% 8.1% 1.0% 7.6% 6.7% Median $40,262.0 $2,138.0 $2, % 9.1% 12.0% 4.8% (0.7%) 2.9% 3.5% Chemed Corp. $1,557.1 $193.3 $ % 12.4% 14.3% 4.1% 1.2% 8.8% 9.0% Comfort Systems USA Inc. 1, % 5.9% 7.4% 5.6% 9.6% 44.4% 33.7% Lennox International, Inc. 3, % 10.9% 12.6% 3.2% 2.7% 12.5% 10.6% Rollins Inc. 1, % 16.3% 19.3% 3.8% 0.5% 6.4% 5.6% Median $1,577.0 $219.4 $ % 11.6% 13.5% 3.9% 1.9% 10.7% 9.8% Ameriprise Financial, Inc. $11,914.0 $3,031.0 $3, % 25.4% 27.5% (4.0%) (4.5%) (15.0%) (14.1%) Citigroup Inc. 66,934.0 NM NM NM NM NM (4.0%) NM NM NM Intuit Inc. 4, , , % 25.9% 30.5% 17.5% 1.1% 31.9% 27.4% The Charles Schwab Corporation 6,543.0 NM NM 96.4% NM NM 7.2% 0.1% NM NM Visa Inc. 14, , , % 65.7% 67.4% 5.5% (0.1%) 6.8% 6.0% Median $11,914.0 $3,031.0 $3, % 25.9% 30.5% 5.5% 0.0% 6.8% 6.0% Tech Enabled Services Alphabet Inc. $77,988.0 $20,255.0 $25, % 26.0% 32.7% 12.0% (0.3%) 14.0% 12.8% Groupon, Inc. 3,101.1 (54.9) % (1.8%) 1.0% 0.5% (3.3%) NM NM Pandora Media, Inc. 1,230.6 (142.4) (112.4) 44.7% (11.6%) (9.1%) 20.2% (3.0%) NM NM TripAdvisor Inc. 1, % 12.5% 15.7% 5.0% (0.4%) (41.8%) (34.6%) Zillow Group, Inc (67.4) (10.4) 90.8% (9.6%) (1.5%) 46.7% 0.5% 37.8% (35.4%) Median $1,481.0 ($54.9) $ % (1.8%) 1.0% 12.0% (0.4%) 14.0% (34.6%) ABM Industries Incorporated $5,052.4 $81.4 $ % 1.6% 2.8% 10.7% (9.6%) NM NM Aramark 14, , % 4.7% 8.2% (2.8%) 3.4% 8.3% 3.8% Compass Group PLC 24, , , % 7.1% 9.1% 5.5% 2.7% 6.5% 6.6% Ecolab Inc. 13, , , % 15.3% 21.7% (5.1%) 1.8% (0.8%) (1.2%) Sodexo S.A. 22, , , % 5.5% 7.1% 6.4% (0.4%) 6.7% 9.4% Median $14,317.3 $1,256.2 $1, % 5.5% 8.2% 5.5% 1.8% 6.6% 5.2% Source: Capital IQ 4

6 Industry Valuations As of July 8, 2016 ($ in millions) Enterprise Total Debt / Enterprise Value / LTM Market Cap Value* LTM EBITDA Capital Revenue EBIT EBITDA Freight Services CH Robinson Worldwide Inc. 10, , x 9.4% 0.8x 12.7x 11.9x JB Hunt Transport Services Inc. 9, , x 10.0% 1.7x 14.5x 9.8x Penske Automotive Group, Inc. 2, , x 170.5% 0.4x 13.3x 11.7x United Parcel Service, Inc. 97, , x 15.9% 1.8x 13.6x 10.7x Median $9,977.6 $10, x 13.0% 1.3x 13.5x 11.2x Community Health Systems, Inc. $1,451.5 $18, x % 1.0x 14.3x 8.3x HCA Holdings, Inc. 30, , x 100.1% 1.5x 10.3x 7.8x Humana Inc. 23, , x 18.9% 0.5x 11.5x 10.4x UnitedHealth Group Incorporated 132, , x 25.4% 1.0x 13.9x 12.4x Universal Health Services Inc. 13, , x 24.8% 1.8x 13.0x 9.9x Median $23,057.5 $24, x 25.4% 1.0x 13.0x 9.9x Chemed Corp. $2,311.7 $2, x 6.3% 1.6x 12.6x 10.9x Comfort Systems USA Inc. 1, , x 4.7% 0.7x 12.6x 10.0x Lennox International, Inc. 6, , x 17.0% 2.1x 19.8x 17.0x Rollins Inc. 6, , x 0.0% 4.2x 25.7x 21.7x Median $4,376.2 $4, x 5.5% 1.9x 16.2x 14.0x Ameriprise Financial, Inc. $15,689.3 $13, x 45.7% 1.2x 4.5x 4.2x Citigroup Inc. 127,493.4 NM NM 353.6% NM NM NM Intuit Inc. 29, , x 3.4% 6.3x 24.3x 20.6x The Charles Schwab Corporation 35,368.5 NM NM 10.4% NM NM NM Visa Inc. 184, , x 8.6% 12.7x 19.3x 18.8x Median $35,368.5 $29, x 10.4% 6.3x 19.3x 18.8x Tech Enabled Services Alphabet Inc. $498,835.7 $432, x 1.5% 5.5x 21.4x 17.0x Groupon, Inc. 2, , x 2.6% 0.4x (25.4x) 45.4x Pandora Media, Inc. 2, ,879.9 (2.1x) 8.0% 2.3x (20.2x) (25.6x) TripAdvisor Inc. 10, , x 1.1% 6.5x 51.8x 41.1x Zillow Group, Inc. 6, ,393.7 (22.0x) 3.4% 9.1x NM NM Median $6,677.4 $6, x 2.6% 5.5x 0.6x 29.0x ABM Industries Incorporated $2,083.2 $2, x 10.0% 0.4x 27.6x 16.1x Aramark 8, , x 64.4% 1.0x 20.3x 11.7x Compass Group PLC 31, , x 15.4% 1.5x 20.9x 16.3x Ecolab Inc. 35, , x 19.4% 3.1x 20.6x 14.5x Sodexo S.A. 16, , x 18.9% 0.8x 14.5x 11.3x Median $16,347.2 $18, x 18.9% 1.0x 20.6x 14.5x Source: Capital IQ 5

7 LTM EBITDA Margin Business Services: LTM Growth and Profitability Matrix For the Period Ended July 8, % Median 18.8x LTM EBITDA 17.0% 14.4x LTM EBITDA 14.0% Median 12.9x LTM EBITDA 11.0% 16.3x LTM EBITDA Median 9.2x LTM EBITDA 11.6x LTM EBITDA 8.0% 11.2x LTM EBITDA Freight Services Median 11.6x LTM EBITDA Tech Enabled Services Median 16.0x LTM EBITDA 26.9x LTM EBITDA 5.0% (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 3 - Year Revenue CAGR = Total Enterprise Value for Instrumentation Companies 5-Year TEV / EBITDA For the Period Ended July 8, x 16.0x 12.0x 8.0x 4.0x Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 S&P 500 Index Freight Services Tech Enabled Services Source: Capital IQ 6

8 League Park Case Study Tri-County Maintenance and Cleaning, Inc. Location: Cleveland, Ohio Assignment: M&A, Acquisition Company Description Tri-County Maintenance & Cleaning, Inc. ( Tri- County or the Company ) is a leading provider of janitorial and cleaning services to movie theatres across 19 states The Company offers nightly cleaning services to movie theaters 365 days per year, including basic auditorium cleaning, restroom janitorial, lobby mopping, and food service area cleaning The Company also provides special services which focus exclusively on the specialized needs of theatres, including carpet and seat cleaning, floor work, high dusting, power washing, and more 7

9 League Park Recent Transactions RECENT TRANSACTIONS BUSINESS SERVICES & CONSUMER HEALTHCARE & IT INDUSTRIAL BUILDING PRODUCTS 8

10 LEAGUE PARK OVERVIEW League Park Advisors, LLC ( League Park ) is a boutique investment banking firm committed to advising clients on strategies to try and maximize shareholder value. League Park counsels its clients on monetizing business value through sales and recapitalizations, enhancing corporate value through strategic acquisitions, and raising capital to fuel growth. League Park s senior bankers have decades of investment banking and M&A experience, completing over 300 transactions in the past 25 years.* The League Park team pledges to provide sophisticated, specialized attention at every stage of the transaction process with a unique blend of financial, strategic, and operational expertise. Advisory Capabilities: Sell-Side and Buy-Side Mergers and Acquisitions Recapitalizations and Refinancings Capital Raising Valuations and Fairness Opinions Strategic Alternatives Other Financial, Strategic, and Operational Guidance To learn more about Business Services, please contact: Sean Dorsey Founder and Managing Director (216) sdorsey@leaguepark.com Industry Expertise: Building Products Consumer and Retail Technology Industrial Business Services Facility Services Tech Enabled Services Logistics and Distribution To learn more about League Park, please contact: 1100 Superior Avenue East, Suite 1650 Cleveland, Ohio (216) or visit us at: *Transactions represent personal experience of certain members of League Park Advisors, LLC and may have been completed while employed at other firms. 9

11 SOURCES AND DISCLOSURE Sources Referenced Capital IQ Company Investor Presentations Equity Research FMI Corporation Pitchbook SEC Filings and Forms (EDGAR) Standard & Poor s The Freedonia Group The Freedonia Group Research materials for the preceding report were provided by The Freedonia Group. Founded in 1985, the Freedonia Group is a leading international business research company that publishes more than 100 industry research studies annually. These reports include product and market forecasts, industry trends, threats and opportunities, competitive strategies, market share determinations and company profiles. More than 90% of the industrial companies in the Fortune 500 use The Freedonia Group research to help with their strategic planning. Disclosure The preceding report has been prepared by League Park. This report is an overview and analysis of the industry and consolidation trends and is not intended to provide investment recommendations on any specific industry or company. It is not a research report, as such term is defined by applicable law and regulations. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. In addition, this report is distributed with the understanding that the publisher and distributor are not rendering legal, accounting, financial or other advice and assume no liability in connection with its use. This report does not rate or recommend securities of individual companies, nor does it contain sufficient information upon which to make an investment decision. Any projections, estimates, or other forward looking statements contained in this report involve numerous and significant subjective assumptions and are subject to risks, contingencies, and uncertainties that are outside of our control, which could and likely will cause actual results to differ materially. These materials are based solely on information contained in publicly available documents and certain other information provided to League Park, and League Park has not independently attempted to investigate or to verify such publicly available information, or other information provided to League Park and included herein or otherwise used. League Park has relied, without independent investigation, upon the accuracy, completeness and reasonableness of such publicly available information and other information provided to League Park. These materials are intended for your benefit and use and may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purpose, without the prior written consent of League Park. Nothing herein shall constitute a recommendation or opinion to buy or sell any security of any publicly-traded entity mentioned in this document. Securities offered through SFI Capital Group, LLC, Member FINRA, Member SIPC and the affiliated broker-dealer of League Park Advisors, LLC 10