Trending: Mergers, Acquisitions in Laundry Industry

Insiders share views on M&A, reasons behind, future possibilities

Matt Poe

December 12, 2023

CHICAGO — Mergers and acquisitions (M&A) are a fact of life in the business world.

While the terms are different—a company purchases another in an acquisition while a merger is a combination of two firms under a new legal entity under one corporate name—they are often used interchangeably.

The result is mostly the same: two companies becoming one.

In the laundry and linen services industry, M&A very often means a larger, national entity or private equity firm buys a smaller, independent operation.

“There continues to be a trend in consolidation of smaller players by larger regional groups,” says Joseph LaPorta, president and CEO of Healthcare Linen Services Group, a provider of linen management services to the healthcare and hospitality industries with six regional brands.

Bill Rottschaefer, vice president of business development for ImageFIRST, a healthcare laundry specialist headquartered in King of Prussia, Pennsylvania, has a similar viewpoint when it comes to M&A.

“Within the healthcare space, the trend has increased over the past few years,” he shares.

“As our customers have consolidated within this market, their demands for infection prevention, customer service, standard product lines and nationally focused vendors who can serve their growing geographies have driven this frequency.”

“Not a month goes by that I don’t come across breaking news stories that another family laundry or uniform business has been acquired by a private equity company or a larger laundry and linen entity (publicly owned) has made an acquisition,” adds Patrick Garcia, president of Division Laundry & Cleaners in San Antonio.

ATTRACTIVE MARKET

Rottschaefer says that private entities are attracted to the industry because of its investment characteristics, “such as recurring contracted revenue, high degree of customer retention and high barriers to entry via investment required for processing capacity, to name a few.”

The underlying market of the laundry operation (healthcare, hospitality, etc.) affects the frequency of M&A, he adds.

“For example, deal activity for businesses that had a high degree of exposure to the hospitality space slowed as a result of the pandemic,” he points out. “Owners of these businesses were less likely to seek an exit while their businesses were still recovering.”

The creation of larger regional operations creates opportunities for a differing set of investment groups to enter into the market, according to Rottschafer.

“Historically, investment groups were focused on transitioning family-owned businesses to institutional ownership, now investment groups have entered the space to grow regional players into national players,” he says.

“There are a variety of reasons, ranging from owners aging and kids are not interested in stepping into the business to competitive pressure from larger players,” LaPorta adds.

“Nationals want market share with their key performance indicators being a return on investment, sell it and make more money,” Garcia says.

“As private and public entities plot their strategies for market growth, it means consolidations, acquisitions or plant expansions.

“Another consideration considered in those decisions is the elimination of competition in key markets.”

M&A EFFECTS

What does all of the M&A activity mean for smaller, independent operations?

“Within healthcare, the continued consolidation of our customers will put further pressure on their vendors, such as those in the laundry space, to also consolidate,” says Rottschafer.

“Furthermore, the supply disruptions from the pandemic increased the requirements for their vendors to have redundancies, such as backup plant capacity and reserve stock at the required scale.”

“This topic has me quite on edge more than most topics in our industry,” Garcia says. “How far this is going to go? Are independents an endangered species? Can independents stay in the game?

“Generally speaking, as long as you want to do it, go ahead. As private equity gets fired up and active, it can be a good sell and in most cases, it’s pretty good.

“A healthy market can accommodate both.”

Of course, an important question is how mergers and acquisitions, the movement from smaller to larger laundry entities, affect customer service and laundry quality.

“In our experience, our M&A activity has improved the service levels for our customers and the underlying quality of the linen offerings to our customers,” Rottschafer shares.

“ImageFIRST has been processing our linen to exceed HLAC standards, and we had a strong service vision and clear product quality standards in place.

“As we integrate acquisitions, we uphold these standards, ensuring consistency across our footprint.”

LaPorta says the effect of M&A on customer service and laundry quality depends on the buyer’s ability to integrate and take advantage of the synergies that an acquisition can bring to all parties.

“Ideally, a larger player will have additional resources to assist and professionalize the ones acquired,” he says.

Garcia says that independent, family-owned laundries that have been in markets for decades probably know the market better than “outsiders.”

“Family-owned laundries pride themselves with pillars that deal with quality, deliveries made when promised, high fill rates on rental goods or COG,” Garcia points out.

“As private equities take ownership with less or no family participation, those pillars that once thrived could deteriorate. They become more price-driven in their pricing models.

“Reaching economies to scale is not necessarily the answer as plants reach their capacities based on many factors.”

Whatever the results, it seems that M&A in the laundry and linen services industry will continue.

“At this time, we do not anticipate the rate of consolidation within the industry to decline or slow,” says Rottschafer.

LaPorta concludes, “We believe this continues for years to come.”