American Residential Services’ partnership approach with Andrew DeCastro and Spencer Hoffman

❝

Great leadership, great people, and great teams drive a thriving company.

Andrew DeCastro and Spencer Hoffman are corporate development leaders at American Residential Services (ARS).

We sat down and talked about how ARS approaches contractor partnerships, the industry in 2023, the benefits of platforms, and more. Our conversation’s been lightly edited for brevity and clarity.

Can I get a little background on you guys?

Andrew: I’ve been in the industry for 15 years, and was at Homeserve before. I’ve been with ARS for a little over a year now leading our corporate development and strategic alliance teams.

Spencer: I worked for a residential home service company in Oklahoma City in late 2009 and worked in various functions. When I got on board, we were at $8 million in revenue, and in late 2019 when I moved to St. Louis, we were around $40 million. I got wrapped up in the M&A world in 2020, and ARS eventually called. It was a no-brainer. 

How does ARS approach M&A?

Andrew: All else equal, we really look for strong brands, strong management teams, and companies that have been operating for a number of years and have a lot of credibility and affinity with customers. Geography-wise, we try to be flexible, but we like a high-population concentration — some of the larger MSAs. 

Spencer: For me, on the sourcing side, getting to know the leadership and the people first is a big part of it. Great leadership, great people, and great teams drive a thriving company.

How does one source contractors to partner with?

Spencer: We have an outbound team who works for us, and also have software that we utilize to help us identify [opportunities]. But at the end of the day, once those boxes are checked, it all comes down to personal interaction. Those phone calls or emails happen daily for us.

Andrew: You have to have a strong ground game and be willing to get on the road, get to know these people, and let them get to know you. We go to as many events, trade shows, and local association meetings as we can. We also have a pretty robust internal referral network where our local branches are helping refer companies in their respective markets.

What are some objections that you hear when doing deals?

Andrew: Sometimes it’s timing. This past year, we had some macroeconomic headwinds with interest rates and mild weather across the country, so we saw some softening. Some owners wanna wait it out until the weather gets warmer or until interest rates go down. And sometimes it’s challenges on valuation and you just can’t get to the right numbers.

Spencer: I run into the emotional part of it. [With] the amount of time and effort that families put into growing these businesses… it can be an emotional time. Sometimes it’s timing, but it can be the owner and families needing to get over the emotional hurdle of passing the baton. We do our best to be stewards of their customers and to carry on their legacy, but there is an emotional component.  

What are some things you do to help newly acquired companies scale?

Andrew: We have an integration leader who’s a former operator, and that person is instrumental in onboarding the branch and its employees. They’re on the ground helping bring along that branch and integrate with the ARS best practices. And then we’re able to implement other best practices — procurement, hiring, and others. 

Comps are critical, and because we have scale, we can take marketing or purchasing comps at the super local level or across the enterprise and communicate them to managers. But I will say, we also like to take best practices from individual branches. More often than not, someone is doing something different and we’ll be happy to implement something that they’ve brought to the table. 

❝

Those folks who are more informed on the legislative developments (IRA, AIM Act) are gonna be better positioned going forward.

Is there an example you can share?

Andrew: One [partner] in particular will buy groceries and food for the week so employees can make their own lunch at the office. And how they approach sales when they go into a customer’s home, there’s some unique opportunities that we’ve been able to adopt as well. They’ve done a really good job at building relationships with end customers that we try to replicate.

Some people love scaled platforms, and others don’t. Thoughts on that?

Andrew: We’re able to create generational wealth for some of these business owners who have worked their tail off and deserve to be rewarded. We provide as much autonomy as we can, and our preference is to have owners stay involved and make key decisions. But for somebody who wants to be completely independent, they just don’t have the buying power that some of the large platforms have. So partnering with a platform, having autonomy, and being able to do what you love is a win-win.

Spencer: I see both sides; I get the pride and family values. But I agree with Andrew that platform backing can make life a lot easier. There’s no shame in having a local family business, growing it, and being large. There’s plenty of room and space and opportunity for everyone. 

What are you guys seeing with multiples lately? 

Andrew: The market’s softened. 2021 and 2022, being a low-interest rate environment, allowed platforms to significantly increase their valuations. We’ve seen the market soften considerably in 2023, but there are still opportunities for partnerships.

Spencer: There’s still residue left from 2021 and 2022 where contractors expect a certain multiple. In 2023, headwinds like interest rates or consumer financing approvals made for lower revenues and lower nets — a lot of different factors played into less deals coming to the table. 

How do you think this plays out over the next five years?

Andrew: There’s gonna be a lot of opportunity. It’s gonna continue to be a fragmented industry that delivers a service that customers need. You need heat in the winter and AC in the summer. There’s gonna be political/legislative changes that affect this industry as well. There’s gonna be a tremendous runway for many years to come. 

Anything else you’re thinking about, industry-wise?

Andrew: There’s a lot of legislation coming through — rebates, incentives, refrigerant transitions — that we’re looking at how they’ll impact our business and future partnerships. We’re looking forward to those changes. It’s also critical to be advocates of the trades and get more skilled workers into the workforce because it can be a tremendously rewarding career. 

Spencer: Just to piggyback, those folks who are more informed on the legislative developments (IRA, AIM Act) are gonna be better positioned going forward. I think as a whole, for the industry, being informed on those two topics is key moving forward — knowing what’s coming.