Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Swimming Pool Service Companies
Transcript
- Lucas: So you know how there are roughly 10.4 million residential swimming pools in the United States, and about 85 percent of them are serviced not by the homeowner but by a local pool company? Luna: I know that my own pool guy has a handwritten route sheet on a clipboard, and he's been coming every Tuesday for five years. So yeah, very local. Lucas: That's exactly the model. And that model — pool service — has become one of the quieter, more methodical roll-up plays in private equity right now. Firms like Leonard Green & Partners, but also a bunch of regional mid-market funds, have been buying up pool route operators for the last three or four years. Luna: Route operators meaning the guy with the truck and the chlorine? How do you even scale that? Lucas: You buy the route. A typical route is maybe 150 to 250 pool accounts. Each account generates somewhere between 80 and 120 dollars a month for weekly service, chemicals, maybe small repairs. So a 200-pool route does about 200,000 dollars in annual revenue, with EBITDA margins north of 40 percent. Luna: Forty percent margins on driving around and adding chlorine? That's better than a lot of SaaS companies. Lucas: It's genuinely good. The cost structure is truck, gas, chemicals, and one person's labor. No inventory risk — you buy chemicals as you need them. No accounts receivable problem because you bill monthly and if they don't pay, you stop showing up. Lucas: And the churn is incredibly low. People don't switch pool guys. It's a hassle. Once someone has your schedule and knows your work, they stay for years. So a pool route is effectively an annuity, and PE firms love annuities. Luna: So what are they paying for these routes? I imagine the multiples are lower than tech, but still. Lucas: For a standalone mom and pop route, you're looking at 7 to 9 times EBITDA. So if a route does 80,000 dollars of EBITDA — which is reasonable for a 200-pool route — you're buying it for about 600,000 to 700,000 dollars. But the real play is aggregating. Buy five routes in the same metro area, merge the back office, share one warehouse for chemicals, and suddenly your corporate overhead is spread across a much larger base. Luna: And you can probably negotiate better pricing on chlorine and pumps when you're buying for a thousand pools instead of two hundred. Lucas: Exactly. Volume purchasing on chemicals can knock 10 to 15 percent off your cost of goods. Plus you can cross-sell repair and renovation services, which have even higher margins. So the combined entity's EBITDA margin can push into the mid-50s. Luna: Let me ask the obvious question though. If the pool guy is the business — his relationships, his know-how — what happens when he sells and retires? Do the customers leave? Lucas: That's the key risk. The brand is the person. So smart acquirers do two things. One, they keep the original owner on for a transition period, often 12 to 24 months, with an earn-out tied to retention. Two, they convert the route to a uniform brand — something like 'ClearPools' or 'PoolServe' — so the customer is buying the company, not the individual. Luna: But does that actually work? I've had three different techs from my pool company over the years. I don't care as long as the water tests right. Lucas: And that's the industry's thesis. Pool service is low-touch. You don't need a deep relationship. You need the water clear and the filter cleaned. So as long as the service quality stays consistent, the customer doesn't really care who owns the truck. Lucas: And if today was actually useful to you — understanding the math behind these roll-ups — the way these shows stay ad-free is listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. It's a small thing that keeps the whole operation independent. Luna: Yeah, honestly, if you've ever gotten a practical insight from one of these episodes, that's the place. No pressure, but it does help. Lucas: Okay, back to pool economics. The other thing that makes this attractive is the industry's growth rate. Pool ownership has been growing at about 2.5 percent annually, which is steady. And existing pools need constant maintenance — there's no tech disruption that makes a pool self-cleaning. Luna: Unless we're talking about those robotic pool cleaners, but even those need someone to empty the basket. Lucas: Right. So it's a defensive, recession-resilient business. People don't stop maintaining their pools just because the economy dips. In fact, they might stay home more and use the pool more. Luna: But there's a labor problem, isn't there? Finding qualified pool technicians is hard. The industry is aging. Lucas: That's one of the biggest constraints. The average pool technician is in their late 50s. The industry body, the Association of Pool & Spa Professionals, says there's a shortage of certified pool operators. So PE firms are trying to create training pipelines. Some are buying trade schools or partnering with community colleges. Luna: Is that scalable? Training someone to properly balance water chemistry and not blow up a heater isn't a two-week course. Lucas: No, it takes about six months to get a tech fully productive. But once they are, they can handle 25 to 30 pools a day. Route density matters too — if you have a compact territory, a van can do 30 stops in a day without much deadhead. Lucas: The largest player in this space is probably PoolCorp, which is publicly traded and does wholesale distribution, not service. On the service side, the biggest consolidators are still private. One I've been watching is a fund called Southfield Capital, which has built a platform called 'Poolwerx' in Australia and is now expanding in the US. Luna: So it's a global roll-up. Are there any parallels to the HVAC or plumbing roll-ups we've talked about? Lucas: Very similar. Recurring revenue, fragmented, trade labor. But pool has a seasonality twist. In northern states, you essentially close the pool for four months. In the Sun Belt, it's year-round. So funds target the Sun Belt — Texas, Arizona, Florida, California — because those routes generate cash 12 months a year. Luna: Seasonality also means you have to manage cash flow differently. You're building inventory in spring, collecting in summer. Lucas: Right. But the EBITDA is real and the valuation multiples have been climbing. Three years ago you could buy a route for 5 to 6 times EBITDA. Now it's 7 to 9. Some of that is competition from other buyers — there are at least six active pe backed platforms doing pool roll-ups right now. Luna: That many? That feels like a mini bubble within the asset class. Lucas: It could be. But the underlying math still works if you consolidate and professionalize. A well-run platform can achieve 20 percent EBITDA margins on revenue, and if you lever it up 3 to 4 times debt, the equity returns are attractive. The exit is usually a sale to a larger platform or a dividend recap. Luna: Or eventually an IPO. You think any of these pool platforms go public in the next five years? Lucas: I think it's plausible. Service businesses have a good track record on public markets. If you can get to 50 million dollars of EBITDA with steady organic growth, the market will give you 12 to 14 times. That's a nice outcome for the original PE backers. Lucas: But the real question is whether they can solve the labor bottleneck at scale. If they can't, growth stalls and the multiples contract. Luna: And the customer relationship piece you mentioned — if a big platform starts sending different techs every week and quality slips, that annuity can break down fast. Lucas: Exactly. So the winners will be the operators that invest in training, brand, and route density. The losers will be the ones that just stack EBITDA and hope for a flip. Luna: I'll keep an eye on my pool guy. If his truck gets a logo overnight, I'll know the PE guys came through. Lucas: And if he starts wearing a branded polo and carrying an iPad, you'll know they've professionalized the back office. That's the tell.