One doesn’t generally look at the business services contractor business as a hotbed of growth. An early beneficiary of the business service outsourcing trend, the industry has settled down into a more stately growth rate influenced by employment trends.
The modern office building or hospital is a complex beast to operate. It takes many different services to manage a facility, ranging from cleaning to various trade contractors for heavy equipment maintenance and remodeling. Many of these are very people-heavy businesses with erratic demand. You’re basically selling expert labor at a mark-up, which means that growth required finding more skilled personnel.
This is especially true for remodeling and ad-hoc construction contractors. The nature of the business favors a highly localized industry structure: a contractor needs to understand the local building code, acquire appropriate licenses, and build relationships with the local authorities. For most businesses in this space, the basic operating unit is “the crew” – a single service truck and the personnel it delivers. Growing sales requires adding crews, which opens you up to the challenge of keeping everyone fully utilized during any future slow period. In an industry at the mercy of the weather, economic trends, and notable swings in customer demand for large projects, this can present a considerable challenge.
But it doesn’t have to be this way. Digital technologies can be used to break down and reassemble these networks of service providers into an offering which is easier for clients to use.
At a strategic level, there are many parallels to an industry like freight brokerage. Many areas of trucking are highly specialized, at both the rig (equipment) and gig (assignment) level. Many haulers are single unit owner-operators, each with their own billing arrangements and contact information. A good freight broker weaves this mess into a single simple view for their clients to move products to market – without sweating the details. More importantly, they can use the data from this process to create value by expanding their network of potential providers, spotting idle capacity, and consolidating demand. The freight brokerage industry has delivered strong results over the past several decades, emerging as a key force in the logistics space.
In this article, we’re going to explore how one company is using a similar strategy to reshape the market for facilities management. Powerhouse Retail Services, a portfolio company of Lincolnshire Management, built a national platform which reshapes the relationship between leading retailers and the local service contractors that deliver remodeling and reset projects. They use technology and digital practices to simplify how corporate facilities managers execute large remodeling projects. As we navigate the uncertainties of 2020, this operating model has created a platform for growth and value creation.
Lincolnshire’s Investment in Powerhouse Retail Services
Lincolnshire Management announced the acquisition of Powerhouse in October of 2019 and indicated that Powerhouse had the potential to grow into a billion dollar business. At the time, Powerhouse was originally described as a nationwide provider of high-volume, multi-site rollouts, refresh, and recurring facilities maintenance services. They had a solid roster of blue chip clients across multiple industries, with notable strength in the retail space.
Powerhouse’s business model is built around the idea that you can separate the project management layer of a large remodeling project from the contractor services teams that actually deliver the work. Going a step further, they focused on the needs of a specific target market, corporate facility managers, and built a comprehensive service offering that addresses all of the services you need to manage a building. From there, they have invested heavily in technology platforms to streamline and simplify oversight of complex remodeling projects, particularly for remote management teams supervising multiple job sites.
Similar to a freight broker, their platform abstracts away the messy realities of deploying a physical remodeling project across multiple retail locations or office buildings into an integrated view which corporate facilities managers can use to keep things on track. Within that platform, they have the ability to tap into a diverse network of 10,000 individual service contractors to get things done.
Coronavirus Response: Grace Under Pressure
This operating model was put to the test earlier this spring as the coronavirus pandemic gained traction. Faced with an abrupt shift in business priorities, corporate facilities managers reached out for help making their buildings safe during the pandemic. Powerhouse quickly tapped into their large network of subcontractors to find options to help clients navigate this new challenge.
Powerhouse assembled a comprehensive package of services to help make a retail location or office building safer for employees and customers. This included physical changes such as installing protective barriers in key locations, reconfiguring the internal layout of an office, redesigning signage programs, and installing hands-free fixtures to reduce the amount of face-to-face and surface contact. Looking beyond remodeling, Powerhouse identified an opportunity to expand their deep cleaning and disinfecting services offering. These services are crucial to giving employees the confidence to return to the workplace after someone has tested positive. This service offering was embraced by their clients and has become a platform for future growth.
“We’ve been impressed with the speed which Powerhouse was able to adapt to a changing market,” commented Phil Kim, a Lincolnshire Management managing director, “In addition to helping clients in the short term, we see considerable future growth for this service line within the retail, healthcare, and hospitality sectors.”
Growth via Acquisition
Lincolnshire’s announcement of the deal was accompanied by a pair of complementary acquisitions in the security services space. This included the nation’s largest provider of full-service installations of self-service kiosks and automated teller machines, giving them immediate reach into the banking and financial services markets.
There’s a network effect at work here. Each new customer and vendor added to the platform creates value for the other participants, creating a deeper roster of services and available capacity for customers and a broader source of potential demand for the vendors. For example, there are immediate cross-sell opportunities between Powerhouse and the two acquisitions. By taking this approach, Lincolnshire Management is tapping into a well established value creation model and applying it to a conventional industry.
These successes make Powerhouse a company worth following. They’ve successfully executed on two time honored value creation strategies for private equity firms: service innovation and bolt-on acquisitions. It will be interesting to see where their relationship with Lincolnshire Management leads them next.