The home improvement segment of the remodeling industry fared the best during 2020. As a group they grew revenues to a whopping $7.2 billion, up from $4.9 billion the year prior. For the current year, the same players are forecasting a collective $9.1 billion in revenue.
How are they managing to do it? They are scaling up, taking share, opening new markets and, to an extent not previously seen in the industry, they are acquiring other companies, often with funds from deep-pocketed private equity firms.
There are a number of reasons why private equity firms are putting down markers in the industry. First, when they get a look at the profit-and-loss statements of firms like Detroit-based Hansons, they see better returns than they are getting in other industries. Hansons was one of the first to be snapped up three years ago.
Second, private equity sees what home improvement companies have always seen in the home improvement industry—a huge $400 billion market largely comprised of local entrepreneurs. Yes, the biggest players in the home improvement space, those who are on the TOP 500 list, are very big by this industry’s standards; but from the perspective of private equity firms, the industry is not fully fledged and is possibly ripe for quick gains.
For the last 20 years or so, an insurance restoration firm, BELFOR Holdings, has owned the top spot on the list; but if this trend continues, it will soon be passed by the likes of Leaf Home, No. 2 on the list this year. The company, which was founded by Matt Kaulig as LeafFilter North, is now headed by CEO Jeff Beck, who has diversified the company into four divisions: LeafFilter Gutter Protection, Leaf Home Safety Solutions, Leaf Home Water Solutions, and Leaf Home Enhancements.
The company acquired Thiel’s Home Solutions in September 2020, Storm Tight Windows in December 2020, Miracle Windows & Showers in January 2021, and in May it bought Quillen Brothers Windows. In addition to being in acquisition mode, the company is also in full-on build-out mode. Beck says the company is on track to open 60 new offices in 2021. In 2020, the company finished the year with $1.07 billion in revenue, up from $581 million in 2019.
WestShore Home, led by B.J. Werzyn, has been similarly aggressive in its acquisition of large-size home improvement firms. In April the company announced the acquisition of Hullco Inc., its 7th acquisition in three years. Headquartered in Pennsylvania, WestShore operates offices in Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, North Carolina, South Carolina and Texas with over 20 operational locations. Hullco recorded $20 million in sales in 2020.
In 2020, WestShore generated $456 million in revenue on 43,970 jobs. For the current year, it is forecasting $700 million in revenue.
“The past 18 months has certainly been both challenging and rewarding as a high-growth home improvement company,” Werzyn says. “As the pandemic winds down and the economy reopens, we have never seen demand this high. That has created certain issues on the supply side of the business that we navigate every day. However, our business continues to thrive during these unique times. We have opened more than 10 new offices since the beginning of COVID through acquisitions or new office openings and have added almost 1,000 new employees.”
One of the industry’s most watched and most admired companies, Power Home Remodeling, No. 5 on the 2021 TOP 500, made the very bold choice to cease operations for three months during the initial phase of the COVID-19 pandemic. Co-CEO Asher Raphael and co-founder Adam Kaliner said the move was driven by a desire to protect its people from potentially contracting the virus as well as to protect their clients. Significantly, the company used the time to do heavy lifting on “sprint projects” and long-term strategic planning. When the firm reopened, it was immediately clicking on all cylinders, they say.
This spring the company opened its newest office in Tempe, Arizona, its 17th homegrown office. In an interview conducted last fall, Rafael told Qualified Remodeler that for offices in big markets it expects revenues to eventually reach $100 million each. Market openings for the firm in Nashville and Chicago resulted in an additional $30 million in revenue each during their first full year of operations. It plans to open nine additional offices in the next four years.
Among Power’s strengths are its youthful culture, which has helped it attract hundreds of 20-somethings eager to sign on to a company with a mission to provide energy savings to homeowners. In addition to offering windows, roofing, siding and insulation, in 2020 it introduced solar power to its product offering. Additionally, Power is a perennial winner of Best Companies to Work For. Last year, for example, the company was No. 3 overall on the list of Best Places to Work in New York City.
According to its TOP 500 application, Power expects to hit $750 million in revenue. It is aiming to hit $2 billion in revenue over the next three years. The solar initiative has the potential to change the home improvement market by developing a model that can bring the difficult-to-install product to the masses.
“No one has really conquered solar to the scale that we think that we will be able to do it,” Kaliner says. “But we’ve been testing and learning and absorbing solar for about five years now to eventually make it another mainstream product for us.”
Growth in the segment is not just happening at the very biggest firms on the list. At Franzoso Contracting, No. 169 on the list, the company is expecting to exceed its 2019 revenues by 80 percent this year, says company executive Mark Sackerson. They are also riding high after a local magazine in Westchester recently named the company “Best Roofer of the Decade.” Sackerson attributes its great local reputation to its long-held strategy of using only in-house installation crews. This is helping the company keep jobs running at the usual pace despite labor shortages elsewhere.
Jim Roland, owner of Window World locations in Baton Rouge, Dallas, Houston, and Tampa, has built an operation that jointly generated $115 million in revenue in 2020. His leadership team is taking on the labor issue, particularly on the installation side of its business, by partnering with local community colleges to launch a window technician training program. His team members developed the curriculum and will be teaching the classes, he says.
The outlook for home improvements remains strong according to estimates of market growth by John Burns Real Estate Consulting. They predict that the portion of the market with jobs over $5,000 will grow at approximately 11 percent this year. Look for ever bigger numbers from the home improvement sector over the next several years as a handful of national companies emerge their aim to consolidate the industry to the extent that it is possible. QR