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2024 Roofing Market Digest

The M&A market for roofing companies remains historically active as investors continue to value steady demand, chase scale

After a highly active 2023, deal activity in the roofing space continues at a rapid pace with no signs of slowing. Despite high interest rates, inflation and economic uncertainty hampering deal-making activity in most of the building products market, investors continue to aggressively chase roofing contractors for deals, attracted by the robust demand outlook, size of the market, and benefits of scale.

These investors can offer a variety of solutions and partnerships for independent operators and provide capital and expertise to assist management teams in achieving their goals. At the same time, many private owners are considering a transaction as valuations are attractive, and the pool of competitive buyers has risen significantly, leading to historic deal activity.

Steady Pace

Consolidation continues at a robust rate, with more investors entering the market every day. Institutional capital providers (i.e., private equity funds and family offices) have a lot of money to put to work, and record numbers have been targeting the roofing industry.

Residential reroofing businesses have attracted the most attention as investors like the self-pay nature of the business model, the lack of weather-driven volatility, and the ability to scale and beef up marketing functions with investments in digital/social marketing, KPI tracking, and CRM systems.

On the new construction front, this market saw a shot-in-the-arm deal with Monomoy Capital Partners' acquisition of Southern Exteriors in May. The goal is to build a regionally and potentially nationally scaled turnkey siding and roofing solutions provider serving the builder market. It seems the worst of the new single-family construction woes that plagued the market may be behind us.

Insurance Pays

The insurance pay market faces structural challenges but also opportunities. Contractors serving the residential restoration/insurance pay market have struggled with stricter claims adjustments and rising deductibles for homeowners. Some operators are pivoting towards more retail and commercial business to offset the challenges here, while others, like hail belt specialist Apple Roofing (owned by Gauge Capital), are choosing to double down and specialize in this market.

Providers who have or develop specialized capabilities in this market (close relationships with insurers, streamlined claims processing abilities, and in-house or third-party consumer financing) will do well as others exit or de-emphasize this market in response to challenges.

Commercial Capital

The commercial roofing market remains strong but is end-market dependent. Commercial roofing contractors, especially those operating in the highly attractive reroof and maintenance side of the business, continue to see growth and outperform expectations. Attractive markets include healthcare, industrial and commercial distribution facilities, and data centers. The SLED market (state, local and educational) remains strong, though there can be working capital issues here, as municipalities are slow to process payments. Another encouraging trend is that commercial insurers in specific markets (e.g., Florida) are insisting on a more rapid replacement cycle to provide coverage, spurring demand for many weather-prone markets.

There remain many aggressive, active buyers in the commercial space looking to acquire new business, including Tecta America (owned by Altas Partners), Nation’s Roof (backed by Acacia Partners), CORE Roofing Systems (Shoreline), and PAX Services Group (New State Capital Partners).

Important trends to track include material shifts and the consumer buying process. Consumers in both residential and commercial markets are emphasizing durability and useful life more and less on aesthetics as they look to minimize lifetime costs. This includes a shift to metal roofing, synthetic materials, and solar.

While homeowners continue to cite word-of-mouth/recommendation as the most frequent channel through which they find a contractor, the share of consumers starting their buying journey online (search engine, social media, home services websites) continues to grow. This channel will become ever more important as younger generations age into homeownership.

Buyers Market?

Buyers are well-capitalized and aggressively looking for growth. After last year's decline in housing, the industry appears to be entering the expansion part of the cycle, and any future interest rate relief will only contribute to the speed and size of the recovery. Many consumers have put off maintenance spending (especially relevant to contractors with meaningful siding exposure), and this pent-up demand will begin to materialize this year and next.

Buyers in the new construction space are focused on turnkey solutions, doing for exteriors contractors what names like Interior Logic Group did for interiors. Overall, we expect investors to continue to be aggressive in sales processes, pushing valuations up.

What should potential sellers think about in this market? The M&A market for residential reroofers is as strong as it has ever been, and the window is wide open for potential sellers. If you’re considering a transaction, now is the time to get serious and begin thinking about kicking off a process.

The story is similar for commercial maintenance/reroofers as there are more well-capitalized aggressive acquirers than at any time in recent memory.

Near-term sellers should begin evaluating their readiness, including the strength of the management team (sales, operations, finance), the credibility of reported financials (audits/reviews, internal controls, speed and regularity of month and quarter closes), and their own goals for a transaction (value, timing, impact on employees, legacy, etc.).

If your timeline is longer than the next several months, potential sellers should focus on things that will drive value and certainty of close. This includes 1) Customer and end-market diversification if the current business is highly concentrated in one market; 2) Strengthening the organization and back office and ensuring the business has a strong team of leaders in sales, finance, accounting and marketing, and; 3) Considering deployment of software and systems that can help across the business in both marketing and operations (e.g., CRM systems, job tracking, KPI monitoring, etc.).

Preparation is Paramount

In the industry, completing a private sale takes approximately six months from start to finish, but at Anchor Peabody, our work often starts much earlier. The more preparation time, the better the outcome. Understanding the company strategy, the management team and bench, the strength of the finance and accounting team, and the growth plan and its defensibility are all key to achieving a successful transaction. We work with potential sellers for months and sometimes years before they ultimately plan to go to market.