Consolidation is Killing the Roofing Industry As We Know It
and I'm landing advertising clients because of it.
My cousin Keith called me one morning. He said something like, “David, I don’t want to stay at my job. I might start my own roofing company and take your representative with me.”
Keith was a project manager at a local roofing company. He had just finished my roofing project and wanted to give me a heads up.
Keith had done this for so long that I had no second thoughts about who might be installing my roof when hail damage occurred.
More on this conversation later.
Private equity is buying into the roofing industry aggressively.
Josh Sparks, one of the leading experts in home service acquisitions by private equity, has this to say in a recent article: “Hundreds of millions of dollars of private equity are flooding the roofing industry today.”
Private equity funds are buying roofing companies with the expectation that the employees will stay in place and maintain and increase their current output over time.
While growth is always the mindset for a successful roofing company, annual revenue projections can be very difficult to make, especially in areas where weather can drastically change your workload.
On top of this consolidation, we had already seen a major step back in the number of construction companies in the United States.
As the Wall Street Journal reported in 2017, “By the Commerce Department’s count,” wrote Justin Lahart, “there were about 368,000 construction firms operating in the U.S. as of 2014 (the last year with available data). That compares with about 530,000 in 2005 and is the lowest number on record going back to 1977.”
I pulled the above quote from this incredible Matt Stroller article. In the article, he details the consequences of consolidation in housing markets across the nation.
He does a great job talking about the macro effects of consolidation on the homebuilding and land-purchasing industries.
What Matt Stroller uncovers is that home builders are essentially middlemen, collaborating with equity funds to get favorable land deals, to which they subcontract all of their construction.
One more quote from Matt Stroller: “Here’s D.R. Horton in 2023: “Substantially all of our land development and home construction work is performed by subcontractors.””
In the article, Matt talks about the Cartel or Mafia-like collusion between some of the top homebuilders in the nation.
See below the quote from Toll Brother (Market Cap: $13B) CEO Doug Yearly:
“And then, we're doing joint ventures with either Wall Street private equity or with our friends in the home building industry, the other builders.”
With private equity entering the roofing industry, one might expect these larger corporations to play nice with each other, especially at the national volume they hope to achieve.
Roofing companies owned by private equity funds will play to win a majority of the above-mentioned subcontracted business that these homebuilders can bring to the table.
The invisible hand has already begun to play its part in this.
“Not so fast,” says the free market.
The new builder and homebuilder market will be huge for these national roofing players. However, nobody who lives in and owns their home wants their roof installed by an equity fund! They want their roof installed by a roofer, preferably a local one.
Experienced roofers with knowledge of the business are quitting their roofing jobs, but they’re not leaving the industry.
My cousin and his business partner, whom I mentioned at the beginning of the article, are prime examples of this. The repercussion? They started their own company, and I built these roofers their first website.
You can see my work at TopTierMN.com.
Like all websites, this is a work in progress.
Our next step is a photo shoot, a new phone line, a truck wrap, business cards, direct mail, more apparel, and the list goes on.
I’m so excited to help these roofers get their work done (better)
When they first called me, they were already installing roofs under their LLC. All of the obstacles most business owners face were taken care of.
There was no second-guessing their operating system that was already proven.
They started a roofing company from ‘scratch, and their first obstacle was a domain.
We purchased the domain together during an in-office visit. Although there are better domain registrars, we used GoDaddy because I knew they were already familiar with the service. Thank you, Super Bowl commercials.
With the power of local word-of-mouth and referrals, you truly do not need a website. It was an added luxury for them.
The main reason they called was for a professional email tied to their domain.
What did I learn from this?
The consumers who can get ahold of the real roofers will choose them any day over a larger private equity fund. Even if they can only reach the roofer via personal cellphone.
Equity funds and consumers do not align in the industry. The consumer doesn’t care about how many locations a roofing company has, how robust the website is, how many sales representatives they have, or how much revenue one or the other generates. The consumer wants their roofing project completed by someone they can trust.
Professional email, website, professional video, etc. can all contribute to that trust factor. But what it comes down to is doing what you say you’re going to do and providing social proof that you have done that recently.
I don’t think the consolidation in the roofing industry is a good thing.
It might pay off in the short term for equity funds, but it won’t pay off in the long term.
Many of these brands will lose all of their local connections and trust, spoiling what these businesses and brands worked hard to build.
The invisible hand of the free market will create roofing companies where they are needed.
Brands and strategies will be built from the ground up. The story about consolidation in the roofing industry is far from over.
I am excited to build the Next Generation of Home Service Businesses with my friends and colleagues.