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Most firms have experienced strengthened demand for services under the Facilities Management; a trend which has enticed service providers to expand their operations. However, despite favorable demand conditions during the past three years, service providers’ ability to expand market share has been hindered by minimal barriers to entry and a low level of service specialization. These factors have further enhanced the level of competition in the sector, thus working against operators’ expansion efforts. Amid intense competition, operators within the Facilities Management sector have attempted to separate themselves from the pack by expanding their scope of service offerings.

Significant Competition

Barriers to Entry
  • Barriers to entry in the Facilities Management sector have been low, leading to intense competition
  • Negligible start-up costs are the main contributor to significantly low barriers
  • There is a low level of training required for facility maintenance employees, thus labor has not been a significant barrier to entry. Typical wages for industry employees average close to the national minimum
  • There are no licenses or regulations exclusive to this sector, apart from meeting all general state occupational health and safety regulations

Key Takeaway: The ease with which service providers can enter the downstream markets has encouraged the rapid infiltration of non-employers. While non-employer firms only have the capacity to service smaller buyers, their willingness to take early losses in order to establish a client base has placed intense pressure on larger firms to compete on the basis of price.

Mergers & Acquisitions

Operators within the Facilities Management sector have attempted to stand out by expanding their scopes of service offerings (via mergers or acquisitions).

  • M&A activity has been done in an efficient manner as larger firms have absorbed smaller operators in related facilities management markets, rather than creating an entirely new market segment
  • Several firms with available assets expanded their reach to stand out from the competition. For example, Scotts Miracle-Gro closed the sale of its lawn care division to TruGreen a landscaping service firm owned by ServiceMaster Global Holdings Inc. ServiceMaster has also acquired Terminix (a pest control service firm) to achieve dominance in the sector. BrightView Landscapes LLC, acquired The Groundskeeper and two California based landscaping companies, Marina Landscape Maintenance and Girard Environmental Services LLC in 2017 to expand its reach in the landscaping services market

Key Takeaway: M&A practices provide acquiring firms with an established client base and the ability to build strong relationships by offering added value (via expanded service offerings). Buyers could leverage the threat of procuring a range of facilities management services from multi-discipline firms to secure contracts that are more favorable from smaller specialty operators.

Outlook

During the next three years, operators are expected to face the threat of rising minimum wage requirements in many states. No firm will be exempt from incurring higher wage costs, as this shift comes by way of government mandate. For example, the minimum wage in California is expected to increase from $11.14 per hour in 2019 to $14.14 per hour by 2022. This trend is expected to place downward pressure on operators profit margins, forcing firms unable to shift this cost onto buyers out of the sector. Consequently, this trend means less room for buyers to negotiate service prices or pit suppliers against one another to achieve costs savings. As a result, ProcurementIQ expects increased demand for firms offering a wide range of facilities management services, leading to even more M&A activity.

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