Brightview Holdings: Recent changes after the investment from a PE firm and CEO change

M.Cap: $812M | Debt: $972M | Cash: $65M | EV: $2.2 Billion

EV/Revenue: 0.8X

Volume: 199,106

Major shareholders: Kohlberg Kravis Roberts & Co. L.P.: 53.6% | Blackrock Inc.: 5.1%

I. RESEARCH

1. Basics

• The company is the largest provider of commercial landscaping services in the United States
• The company operates through a network of over 280 branches with a qualified service partner network.
• The company caters diverse customer base includes approximately 8,800 office parks and corporate campuses, 7,100 residential communities, and 550 educational institutions.
• Segments - Maintenance service delivers a full suite of recurring commercial landscaping services ranging from mowing, gardening, mulching and snow removal, to more horticulturally advanced services, such as water management, irrigation maintenance, tree care, golf course maintenance and specialty turf maintenance.

• Development Services segment provides landscape architecture and development services for new facilities and significant redesign projects.

 2. Seven times larger than the next competitor

• The company's revenue is approximately seven times those of its next largest commercial landscaping competitor.
• The industry is highly fragmented. The company holds a 3% market share.

 3. Key financials

 II. WHY ARE WE FLAGGING THIS?

1) Strategic investment & CEO change

• In August 2023, the company received $500 million strategic investment from One Rock Capital Partners in the form of convertible preferred stock.
• Additionally, the company appointed Dale A. Asplund as CEO in the same month.
• Impact? The company used the proceeds to pay down the debt, resulting in a significant reduction in leverage and interest expense.
• This investment resulted in leverage coming down by approximately 2 turns and reaching a historical low of 2.9 times compared to the 4.8 times in the prior year.

 2) Track record of Mr. Asplund, new CEO

• For the past 25 years, he served United Rentals, the world's largest equipment rental company. In his most recent role as COO, he focused on execution and delivering exceptional customer experience.

 3) Recent significant changes

It has been only a couple of full quarters since the new CEO took charge. Nevertheless, here are some initial changes:

 a. Suspension of M&A

• There have been no acquisitions in the past two quarters

we haven't traditionally been great stewards of that capital as we've deployed it. So our M&A process, that -- the first thing I did with the team, and I am so happy with the progress we've made is tap the brakes on M&A because like I've said, M&A is not just a financial move. – CEO, Q1 2024

 b. Renewed look at M&A

• The new CEO emphasizes "strategic fit" when considering acquisitions, rather than focusing solely on the "financial aspect."
• As stated in the recent conference call, field operators are currently reviewing over $700 million worth of potential M&A targets. They are evaluating which ones align best with the company's objectives to enhance ownership, accelerate growth, improve efficiency, and generate bottom-line returns.

 c. Exit from non-core business

• In January 2024, the company sold its U.S. Lawns franchise business for roughly $52 million.

 d. Investing on people / Decentralization-Centralization

• The company plans to use the cash proceeds of $52 million to a) replace its aging fleet, b) buy new lawn mowers, and c) continue making significant investments in the health and safety of its employees.
• Centralization: The company is removing non-customer-facing work from its field operations personnel and branch offices. The CEO believes this will allow field operators to spend more time with customers. Processes related to accounts receivable, accounts payable, and supporting financial functions will be handled at a centralized location.