PuroSystems would consider acquisitions and welcomes sell-side approaches

Originally posted in MergerMarket: PuroSystems would consider acquisitions and welcomes sell-side approaches – CEO

PuroSystems, the privately held Tamarac, Florida-based property restoration franchise, would consider making acquisitions of emergency cleanup or construction franchises to build its footprint in the US, Mark Davis, CEO and chairman, said.

The fire and water damage restoration company was acquired by Davis and his partner, co-CEO Frank Torre, this week. The pair still jointly run another business in the space, Troy, Michigan-based Signal Restoration Services. PuroSystems has franchises in 232 locations across the US and Canada, catering mostly to residential clients. Its new owners plan to expand the service to more commercial clients.
PuroSystems’s major focus in the coming year will be expanding training for franchisees and its offerings to clients, Davis said. But he also welcomes sell-side approaches on potential targets including emergency cleaning and construction franchises.

Davis said he plans to keep Signal and PuroSystems as separate brands. Signal is more of a “boutique” provider focused on tackling larger scale individual projects. The 25-year-old PuroSystems, a franchise which operates under the brand PuroClean, already has a greater brand presence than Signal and a large distribution network. The former owners of PuroSystems retained a 20% stake in the business.

“If we were to entertain [a buy] it would have to be north of 100 franchise locations,” Davis said. However if it was a unique service, he’d “probably look at someone with 50 locations.” PuroSystems’ revenues are USD 74m in the US and USD 20m in Canada. Signal’s revenues average around USD 55m but spiked to USD 140m in 2013 because of Superstorm Sandy, when it was awarded a contract from the City of New York to handle the region’s disaster recovery, Davis said. Within five years, Davis hopes to be at USD 150m revenue at Signal and USD 200m for PuroSystems, “and that’s without a storm.”System-wide, PuroSystems now has about 1,600 employees, he said.

Davis is particularly eager to make inroads in what he defines as “cities without a football team” – meaning those that have large populations, but are often commercially overlooked. “When we look at the map of where we have our locations, we have some gaps in the center of the country and then there’s also some gaps in the second-tier markets: these are like Oklahoma City, Tulsa, or Omaha,” he said.

“The business continues to be one of the most fragmented in the US. That’s one of our advantages,” he said. Davis said that with an expanded national presence, PuroClean could cater to national and international scale clients that only want to deal with one provider.

He said he prefers clients that are national brands with lots of on-site square feet, such as major retail, commercial real estate and healthcare providers. Major competitors include Servpro and ServiceMaster [NYSE: SERV] at the larger end and, closer to PuroClean’s scale, peers include Dublin, Ohio-based, family owned Stanley Steemer; Toronto-based property management company FirstService [NASDAQ: FSV] through its subsidiary, Paul Davis Restorations; and Waco, Texas-based, Rainbow International, which is backed by The Dwyer Group, Davis said.

Private equity interest in the restoration franchise space has driven multiples to what Davis considers extravagant levels. “The typical range we’re hearing about franchisors going 10 to 15X of EBIDTA,” he said. Davis previously co-founded property restoration business Belfor USA Group, where as CEO he says he grew the company from USD 35m to USD 400m in annual revenue. Davis said he firmly regrets selling Belfor “too early” and said he wants to hold onto the PuroSystems and Signal platforms far into the future.

The acquisition of PuroSystems was funded with a combination of equity and debt and more debt can be arranged if needed through his lender, Northstar Bank, Davis said.

PuroSystems worked with Michigan-based UHY Advisors and the franchise law boutique Kostopoulos Rodriguez on the acquisition. Davis said he negotiated directly with PuroSystems, which did not use a banker.