By David F. Giannetto, CEO of WorkWave
When it comes to technology investment opportunities, service-based technology isn’t always top of mind for investors, but once there’s an understanding of the profitability, growth and stability of this industry, you might rethink that decision. Field service technology is critical to the growth and operation of industries that are essential in keeping homes and commercial facilities well maintained, safe and operational - industries such as pest control, lawn care, cleaning, security, HVAC and more. These businesses rely heavily on their technology partners to not only manage their business, but also to drive their growth and profitability, and this relationship is only growing stronger.
The success of technology is driven by the industries it serves
Investor interest in field service technology has increased over the past several years primarily because COVID made it clear that this technology supports essential industries that are “recession resistant.” At the same time, these industries have been going through a period of consolidation, where one service provider is buying another to grow inorganically. These larger companies must operate at scale, fueling the need for software solutions and giving field service technology companies efficient access to greater revenue. These dynamics, combined with a significant and growing targetable market, make them ripe targets for the investor community.
Within service verticals, inorganic growth has traditionally come by one service provider acquiring another. But now, for the first time, private equity is getting into the game and aggressively acquiring service providers to create even larger companies within their portfolios. As a result, service companies that were once looked at as mostly small, local businesses are now professionalized, global enterprises with access to greater capital - capital that can be used for increased investment in technology. For example, global pest control leader Anticimex is owned by Sweden-based EQT, CenterOak Partners recently acquired Palmetto Exterminators, and ExperiGreen is now part of Huron Capital Group. And it’s not just the private equity firms turning their head toward the service industry, but big banks as well. Morgan Stanley recently invested in Fairway Lawns, a provider of residential lawn care services. These groups are focused on building significant scale and growing their platform and portfolio of companies to be north of $100 million in annual revenue.
This renewed focus on field service verticals has brought attention to a group of industries that has in the past gone unnoticed. Investors are taking a closer look at field service companies because they:
- Are essential - whether residential or commercial, small or large, service businesses like pest control, lawn care, landscaping, HVAC, or cleaning, are critical and these services cannot be discontinued just to cut costs.
- Are rooted in recurring revenue - recurring revenue creates predictability and consistent and guaranteed growth - considerably more attractive than revenue driven by one-time purchases or offerings.
- Have the ability to grow beyond their core services - most service businesses, regardless of vertical, share the same business processes. This creates opportunities for horizontal growth when professional management teams take over - something that these industries haven’t taken full advantage of yet.
Software is critical to the growth and success of field service companies
Field service software solutions are at the heart of driving growth within all field service verticals. According to IBISWorld, the field service management software industry will grow to over $3.0 billion by 2026. And this growth will largely be contained within the existing landscape of solution providers, because the unique needs of these industries create barriers to entry for would-be, new field service software providers; something that existing field service software owners understand and are using their investment power to both protect and reinforce. These unique needs of field service providers include:
- Deep CRM functionality to manage complex customer information and interactions
- Highly mobile field-oriented solutions integrated the back office to create greater efficiency
- Complex routing and scheduling to balance optimal route density with customer requirements, often capable of increasing efficiency by over 30%
- Customer communication capabilities that deliver the modern customer experience customers demand
- The ability to drive recurring revenue models that are the new primary growth driver for service providers - often exceeding 90% of their revenue
- The security and capabilities to manage and move customer money through the banking system, all on one user-friendly solution
What really makes field service technology unique, however, is the personalized features and functionality that are special to these industries, such as custom forms, proof of service, compliance reporting on state and local regulations when using specific chemicals, marketing functionality that blends physical and digital marketing at scale for local geographies and mobile-oriented customer portals, amongst others. These features seem common to any operational solution, but actually require significant industry knowledge to create.
As the size of service providers increase, and as they professionalize, the demand to utilize software to achieve even greater levels of efficiency and growth creates the need for higher level functionality - deeper operational reporting, business intelligence, seamless integration via robust APIs and reliable performance at scale. This next level functionality offers greater ability to capture these larger organizations as customers, and the greater revenue they bring, but also requires greater resources to create these more complex solutions - opening the door for investors to step in.
This dynamic - where companies are rapidly growing, often fueled by inorganic growth, creates the need for more complex and scalable solutions. This requires greater investment in order to build and capture this growing revenue and is often the one most critical characteristic that fuels sudden, rapid injection of capital by investors. The field service software industry was already in the early stages of this dynamic in early 2020. The pandemic, which crippled many industries, made it clear that the service industries these solutions serve are amongst the least risky. The combination has further fueled investor activity both within these industries and the software industries that support them.
The outcome is a perfect storm of opportunity right at the onset of a recession that will again show that service industries are amongst the most stable and reliable industries within our economy. And what investor isn’t looking for that safe haven right now?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.