Q&A: The roofing M&A landscape

Private equity has flooded the roofing sector over the past few years, driven by the industry’s non-discretionary and fragmented nature. 

The rush sent valuations climbing; however, it was somewhat short-lived. Now, with elevated interest rates and consumer uncertainty, the market is settling into a deliberate phase. But it’s likely just the beginning. 

What’s happening: Homepros caught up with Aaron Toomey, Managing Director at home services-focused investment bank Anchor Peabody, for a quick conversation about what’s happening in the roofing M&A world. 

This conversation has been lightly edited for brevity. 

How has private equity impacted the roofing industry over the past two decades? 

“I would say we really started to see reinvestment from the private equity side of things back into the building sector in the mid-2010’s, coming out of the Great Recession,” Toomey said. 

Investors returned first to distribution, then to services, he added. The roofing industry is “highly, highly fragmented,” dominated by local operators. 

“If there is a problem with a roof, it’s largely nondiscretionary,” he said. “[PE likes] growth, they like consolidation opportunities, and they like consistent demand because they’re obviously going to put debt on these companies, and they want to be able to maximize their returns, which means prudently minimizing their equity investment.”

How would you describe today’s valuations?

“We’ve certainly seen [purchase multiples] come back down to earth a little bit,” he said, noting that many deals are currently falling in the high-single-digit range, down from double digits. “It happened in HVAC, where things get a little bit higher… as people compete over assets.” 

“I think the other thing is, we’ve seen earnings come down.”

PE firms today are also taking a more disciplined growth approach, he explained. 

“There is less of an absolute [M&A] need for some of the established platforms,” he said. “They’re out there saying, ‘We have a nice asset of scale that we’re comfortable with, that we’re making operational improvements on. We’ll go out and buy something if it makes a ton of sense and we can get it at the right price. But we’re not under the gun.’”

How have you observed contractors adjusting to the shift?

“There has been enough of a time break, where people have seen the decline in multiples,” he said; however, many owners are still psychologically anchored to peak-era deals, he added. “It takes a few more comps for expectations to fully reset.”

Meanwhile, uncertainty has widened the gap, with open questions about interest rates, trade policy, and the broader economy causing buyers and sellers to see the market differently. 

“Whenever there’s uncertainty, there are differences of opinion,” he noted.

There has been a lot happening at the macro level, so what are you paying attention to right now — or what are you hearing from contractors?

“Gas prices are one of those things that people see every day. It never makes people feel any better when they’re up,” he said, adding that geopolitical tensions, including the war in Iran, feed into that dynamic, influencing consumer confidence. 

Beyond that, interest rates and existing home sales, which have remained subdued over the past few years, are key focus areas. “When existing home sales come back, it’s going to lead to a rush of home improvements,” he said. 

How do you anticipate the M&A landscape to play out over the long term? Do we get to a point where the majority of the market has been consolidated?

“I do think we remain pretty far away from this, which isn’t to say we won’t see large transactions or mergers. We still have a large number of smaller businesses out there, and even the largest residential contractors are not billion-dollar-plus businesses yet,” he said. 

“There are at least 150 roofing contractors above $10 million in revenue, so there’s still a lot of M&A to be done to consolidate the smaller businesses before we’re left with only a handful of major players,” he added. 

“I do think that some platforms will ultimately consolidate each other. As these platforms get larger, the universe of potential buyers shrinks. At a certain scale, only a handful of large private equity firms can afford to take on deals of a certain size. As a natural consequence, some of these larger platforms will find each other as ultimate exit partners. The industry-shifting reorganizations typically take years and years to play out. We’re still in the early innings.”

Alright, to close, a serious question: What are you doing when you’re not in the office? 

“I’m married with two boys — 12 and eight. One in elementary school, one in middle school. They wrestle, swim, and play golf. I love playing golf with them.”