Preliminary Diligence
Preliminary diligence for facility, grounds and home services deals
What an acquirer must establish before an LOI on a landscaping, janitorial, restoration, HVAC, plumbing, electrical, roofing, pool, tree or snow business: recurring revenue, seasonality, labor, fleet and licensing. BizNexus matches you with a diligence provider sized to the deal.
Preliminary diligence on a facility or home services business must establish how much revenue recurs under contract, how exposed earnings are to weather and season, who does the work and on what terms, what the fleet will cost to replace, and whether licenses and insurance survive a change of control. BizNexus matches you with a provider sized to the deal.
Before the LOI
What to establish before the LOI
Five areas a preliminary review covers in facility, grounds and home services, and the specific questions inside each. Answer these before the LOI and the quality of earnings work starts with a scope instead of a blank page.
Revenue mix and contract terms
- Recurring maintenance revenue versus project and one-time work, by customer and by year
- Contract length, renewal history, cancellation terms and price escalation clauses
- Share of revenue on auto-renewing agreements versus work rebid every season
- Change orders and extras as a share of project revenue, and who approves them
- Route density and job margin by service line, not just company-wide gross margin
Seasonality and weather exposure
- Monthly revenue and EBITDA for at least three years, so the trailing twelve months can be read against the cycle
- How much of the year's profit depends on a single season, storm event or snowfall
- Off-season cash burn, credit line usage and how payroll is carried through the trough
- Storm and remediation revenue separated from the base run-rate, with the year it landed
- Weather-driven overtime and subcontractor spend in peak months
Labor model and crews
- Headcount by role, tenure and pay rate, split between year-round, seasonal and subcontracted
- Dependence on seasonal visa programs, the sponsor of record and the renewal calendar
- Worker classification: W-2 versus 1099 crews, and whether the mix survives an audit
- Foreman and crew-lead turnover, and how many customer relationships sit with them rather than the owner
- Prevailing wage and certified payroll exposure on any public or institutional work
Fleet, equipment and capex
- Vehicle and equipment register with age, mileage or hours, ownership versus lease, and lien status
- Maintenance capex versus growth capex over three years, and what has been deferred
- Replacement cost of the fleet against the depreciation the seller is adding back
- Yard, shop and storage: owned, leased from the owner, or leased at arm's length
- Equipment financing that accelerates on a change of control
Customers, licensing and insurance
- Top ten customers by revenue and margin, with contract expiry dates
- Municipal, HOA and property-management contracts: bid cycle, assignment rights and re-procurement risk
- State and local contractor licenses, who holds the qualifier credential, and whether it transfers
- Pesticide, backflow, refrigerant and similar technician certifications by named employee
- General liability, auto and workers' compensation loss runs for five years, and the experience modifier
- Bonding capacity where public work requires it
Red Flags
Red flags in this sector
None of these ends a deal on its own. Each one changes the price, the structure or the scope of the diligence that follows.
- Recurring revenue that is really a series of annual rebids the seller has been winning on price
- A storm or one-off remediation year presented as the run-rate
- Crews that are seasonal, undocumented or classified as contractors, with the exposure landing on the buyer at close
- A fleet fully depreciated on the books and fully worn out in the yard
- The license qualifier is the departing owner, with no successor named
- The top customer is a municipal or management contract up for rebid inside the next twelve months
Data Room
First data room request
The documents to ask for first. A seller who can produce these inside a week is organized; one who cannot has told you something too.
- Monthly P&L and balance sheet for the trailing thirty-six months
- Revenue by customer and by service line for three years, tagged recurring or project
- All customer contracts above a materiality threshold, with amendments and renewal history
- Employee census: role, start date, pay basis, classification and any visa status
- Fleet and equipment register with age, condition, ownership and lien detail
- Contractor licenses, qualifier designations and technician certifications
- Insurance policies, five-year loss runs and the workers' compensation experience rating
- Lease for yard and shop, including any related-party terms
- Add-back schedule with supporting documents for each item
- Accounts receivable aging and a list of disputed or retained balances
Where the Buyers Are
Acquirer demand in facility, grounds and home services
Active acquirer demand in facility, grounds and home services, pooled and anonymized across current mandates, is on the facility, grounds and home services buyers hub.
Sourcing in This Sector
Diligence starts with a target
OmniSource sources facility, grounds and home services deals across Off-Market, Pre-Market and On-Market channels and matches them against an active mandate, so the targets that reach preliminary diligence already fit the thesis they are being checked against.
FAQ
Facility, grounds and home services diligence, answered
- What should I check before buying a landscaping company?
- Start with how much revenue is on maintenance contracts versus one-time installs, and what those contracts say about renewal and cancellation. Then look at the crews: who is year-round, who is seasonal, and whether any of the labor depends on a visa program. Read the fleet register against the add-backs, and confirm which licenses the company holds and who personally holds the qualifier credential.
- How do you verify recurring revenue in a facility services business?
- Pull revenue by customer for three years and tag each dollar as contracted maintenance, rebid work or project. Match the contracted figure to the actual agreements, checking term, auto-renewal language and price escalators. Then test retention: how many of the customers from three years ago are still billing today. Recurring revenue that survives that test is what a lender and a quality of earnings provider will underwrite.
- How much does seasonality matter when valuing a snow or grounds business?
- More than the annual figures show. A trailing twelve month number can hide a heavy snow season or a light one, so a preliminary review reads monthly results across at least three winters and separates weather-driven revenue from the base. The question is how the business carries payroll and debt service through its trough, and what profit looks like in an average year rather than the best one.
- What is a quality of earnings report and do I need one for a $2M EBITDA deal?
- A quality of earnings report is an independent analysis of whether reported earnings are real, recurring and correctly stated: revenue recognition, add-backs, working capital and one-time items. At $2 million of EBITDA it is usually worth doing, since one mis-stated add-back can move the price by a multiple of itself, and most lenders expect one. Preliminary diligence tells you what the QoE should focus on before you commission it.
- Who pays for preliminary diligence?
- The acquirer engages and pays the diligence provider directly, on terms the two of them agree. BizNexus makes the introduction and does not sit inside the engagement. The provider scopes the work to the deal, so a preliminary review on a lower middle market services business is scoped to the questions above rather than priced as a full-scope engagement on a larger transaction.
- What does the BizNexus preliminary diligence network do, and what does it not do?
- BizNexus maintains a network of diligence providers, including quality of earnings firms, valuation professionals and market analysts, and matches an acquirer with one sized to the deal. That is the whole role. BizNexus does not perform the diligence, issue findings, negotiate or structure the transaction, hold funds, or appear on the engagement letter or closing documents. The provider engages and delivers directly with you.
Book a diligence consultation
Tell us the target, the stage and the size, and we will match you with a diligence provider from the network sized to the deal. The provider engages and delivers directly with you.