Private equity buyers take closer look at roofing as sellers weigh buyer fit

Rich Carroll say service revenue, management depth, labor practices, reliable operating data and post-closing buyer fit are increasingly important to private equity investors as roofing contractors evaluate sale opportunities.

Private equity interest in the roofing industry is intensifying, but investors say the contractors best positioned for a transaction are those that can show stable revenue, disciplined operations and a leadership team capable of sustaining growth after a deal closes. 

In interviews, Charlie Klekamp, VP of corporate development at Latite Roofing, an affiliated portfolio company of Sun Capital and Mohit Kansal, managing director of private equity at Fengate, described a market where buyers are looking beyond headline revenue and EBITDA to assess the durability of a contractor’s earnings, leadership and operating systems. 

Buyers focus on revenue mix 

Klekamp said buyers evaluate how revenue is generated, not simply how much the company brings in. Attractive targets generally have limited exposure to new construction, often below 30% and a well-developed service division producing a few million dollars in revenue annually through repairs, maintenance and recurring agreements. 

Commercial roofing remains the primary focus, particularly work serving healthcare, retail and industrial facilities. Multifamily and homeowners association projects are often viewed as softer markets with comparatively higher risk. 

Storm-related and insurance-funded revenue also receives close scrutiny because unusually favorable weather can temporarily inflate results. Ideally, Klekamp said, that revenue should represent less than 10% of the business. 

The concern, Klekamp said, is “buying off a peak.” 

Kansal said Fengate views roofing as attractive partly because it provides an essential service in a large, highly fragmented market. Still, storms, hail events and hurricanes can make financial performance tough to evaluate. Project-based accounting, safety practices and insurance issues can also complicate an investor’s assessment of a contractor’s underlying health. 

For that reason, owners must be able to explain changes in performance with clear documentation. A revenue decline may have a legitimate cause, but sellers need to show what happened, why it occurred and why future results are expected to improve. 

“You need to have a story that hangs together with all the data to show why this would be a good investment,” Kansal said. 

Management depth draws scrutiny 

Beyond revenue mix, investors also look closely at whether the business can operate beyond the direct involvement of the owner. 

Private equity firms often prefer owners and key executives to remain with the company, retain rollover equity and help execute a multiyear growth plan. If the owner intends to exit, capable leaders must already be in place to maintain customer relationships and run day-to-day operations. 

Staffing gaps can also affect valuation. If the buyer must hire an estimator, sales manager or senior operations leader immediately after closing, that cost may be treated as a run-rate adjustment to EBITDA, reducing valuation. 

Contractors that may pursue a sale in five or 10 years should begin developing their leadership bench now. A documented business plan, repeatable sales process and clear succession strategy demonstrate that the company’s performance is the result of a durable operating system rather than the efforts of one individual. 

Labor practices and data quality shape risk 

Klekamp said buyers strongly prefer self-performed labor and documented employment eligibility and workforce compliance practices. Heavy reliance on 1099 subcontractors can introduce workforce, compliance, immigration and worker-classification risks that investors may be reluctant to underwrite. 

Data integrity is equally important. Buyers expect a contractor’s CRM, ERP, accounting and estimating systems to produce accurate, consistent information without extended delays. Those systems do not need to be proprietary, but they should work together well enough to provide a clear picture of customers, projects and financial performance. 

Customer concentration is another concern. Dependence on one major account—or one unusually large project that rescued an otherwise weak year—can make earnings appear less sustainable. 

Disorganization during diligence can amplify those concerns. Slow responses, conflicting reports or projections that are not supported by historical results may cause investors to question how the company is managed. 

Sellers urged to vet buyer fit, not just price 

That preparation extends beyond financial readiness. Several sellers said the same discipline buyers apply during diligence should also be applied in reverse, as owners assess whether a prospective acquirer’s culture, integration approach and post-closing expectations match the business they built. 

The transaction process can take 75 to 90 days from a signed letter of intent to closing or longer based on the seller’s ability to furnish the necessary information for diligence, according to Klekamp. From the first conversation, Kansal said a transaction may take six months on the fast end and closer to a year in a more typical process. 

Contractors should use that period to evaluate whether the buyer’s post-closing reality is likely to match its pre-closing promises. That includes speaking with owners of previously acquired companies, asking how much independence those businesses retained and determining whether the investor has the resources, experience and operating approach to deliver on its commitments. 

“You’re selling your business which is a major milestone,” Kansal said. “Do your homework and reference checks. Don’t be afraid to ask the tough questions.” 

One contractor who described a failed acquisition said the buyer’s post-closing operating approach differed sharply from what had been represented during negotiations. He said he was told the company would largely remain independent, but shortly after closing, the parent company changed the business model to fit its own methods. 

According to the contractor, the change hurt employee morale and contributed to the loss of numerous customers because service levels declined. The experience underscores why sellers should test a buyer’s promises carefully and speak with owners of companies the buyer has already acquired. 

Another contractor said sellers should get to know the people they will work with after closing, not just the acquisition team leading the transaction. The deal team may make the initial promises, he said, but the post-closing relationship is often shaped by the operators, managers and integration personnel who decide how the business will actually be run. 

For sellers, the message is not simply to find the highest bidder, but to understand who will control the company after closing, how decisions will be made and whether the buyer’s culture is compatible with the company’s employees, customers and service approach. 

The cautionary seller experiences also point to a broader reality in the current consolidation cycle: preparation is not only about becoming attractive to buyers, but also about understanding which buyer is the right fit. 

Both investors said roofing remains early in its consolidation cycle. By comparison, they described HVAC as a more mature market, roughly in the seventh inning and landscaping as further along as well, around the fifth or sixth inning. Roofing, they said, is closer to the second or third inning. 

For contractors, the current market presents opportunity, but it also raises the bar for preparation and buyer selection. Companies with recurring service revenue, deeper management teams, compliant labor practices and organized data are likely to be better positioned as private equity interest in roofing continues to expand. Owners who are considering a sale should also evaluate whether a buyer’s post-closing culture and operating approach fit the business they have built. 

Author’s note: This article is based on interviews conducted by Richard Carroll with Charlie Klekamp and Mohit Kansal, along with anonymous contractor perspectives from sellers who have evaluated or completed private equity transactions. 

About Rich Carroll

Richard Carroll is the founder of the Carroll Consulting Group, a former roofing company owner and advisor to contractors navigating private equity, with 43 years of industry experience.