Wednesday, November 26, 2008

Lawn Doctor could consider strategic options more actively when markets improve; has held preliminary conversations with two banks, exec says

Lawn Doctor has drawn interest from financial as well as strategic suitors, said Scott Frith, vice president, marketing and franchise development. 
But though open to approaches, at the moment the USD 90m in revenue company is not actively pursuing them, he said. “The multiples would not be as attractive.” Interest has been expressed for a minority, majority, or an outright buy of the Holmdel, New-Jersey-based lawn-care franchise. 
The company could, however, consider a buyer more actively when markets improve, said Frith. If it were to consider a sale, the owners would want to continue to own a minority stake in the business and participate in its growth, he added. Robert Magda and Russell Frith, his father, are the primary owners of the closely held business. 
Lawn Doctor has had preliminary meetings with two investment banks that would represent the company in any potential transaction. It uses DLA Piper as its law firm. 
The company has received strong interest from private equity players who like the scalability, free cash flow and predictability of a franchise business, added Frith. Though financial buyers, who understand the franchise business, continue to be interested, access to capital has been restricted and multiples are lower, he added. 
There are pros and cons associated with each suitor, said Frith. Whereas private equity firms tend to run companies as going concerns with access to resources, there is also the strategic advantage of partnering with a franchise company that has other such businesses. 
Founded in 1967, Lawn Doctor currently has around 475 franchise locations nationwide. Business has been slow for franchisers as the main sources for funding a franchise, which include converting 401k into equity, home equity and SBA lending, are drying up, Frith noted. However, the retail consumer or homeowner part of the business has been healthy for Lawn Doctor, he said. The company has an affluent consumer base, and people still want their homes to look good, he added. 
Lawn Doctor could look at acquiring smaller independent lawn care businesses through its franchises as part of its growth plans going forward, said Frith. Though the decision has not been made as yet, there is the opportunity as a number of independents get squeezed out of business, he added. The company would look at making acquisitions in markets where demand for its services exceeds its market share. Lawn Doctor, which has a strong balance sheet, would extend financing to its franchises for making such acquisitions, he added. 
With the price of goods and fuel increasing, the company does expect to increase prices, said Frith. It also expects to be bundling more services together to provide a better value proposition for its customers. Services provided by the company include lawn and landscape care, as well as pest control. 


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