M&A in Field Services Management: Who’s Buying?
- Which types of buyers represent the predominant M&A players in FSM
- What the current trends in M&A dynamics mean for founders
The field services management software sector is an attractive sector for founders and investors alike.
For one, the FSM market is characterized by significant white space in which software providers are selling to customers who are just now digitizing processes for the first time.
Because FSM providers aren’t having to displace existing solutions, they’re realizing great returns on their sales & marketing efforts. And those returns persist, because once a client adopts FSM software, that platform becomes the company’s system of record, creating immense stickiness.
In addition, the ability to monetize payments represents a huge revenue opportunity with relatively minimal burden of development due to the wealth of payments API platforms available.
Overall, the FSM market is experiencing tremendous growth, projected to grow at a 13.9% CAGR (2021-2028) to $8.06B in 2028.
Given these positive tailwinds, many FSM software companies are popping up and planting their flags in niche FSM markets, which has created a highly fragmented market (i.e. many small players).
Where is this leading? The combination of a large market opportunity and a high level of fragmentation have created ideal conditions for market consolidation, placing FSM companies in demand by prospective buyers.
Not all buyers are created equal. Based on our experience advising FSM providers through M&A/capital raise transactions, here are the dynamics we see from strategic, financial buyers, and hybrid buyers.
Large-scale strategic buyers (usually publicly traded) tend to have defined M&A strategies and can offer higher "strategic" valuations due to potential synergies at scale, making them important participants in a deal process.
However, because the FSM space is a relatively new market and a sub-vertical of the broader Enterprise Resource Planning (ERP) market, there aren’t enough mature, publicly traded companies in the space to constitute a fulsome buyer pool from these companies alone.
But though there may not be many large scale FSM strategics, there are still a lot of strategics outside FSM that are looking to either get into the vertical or access its payment volume. These companies have considerable size and are looking to make a splash.
Private equity firms have staked their claim in the FSM market due to the realization of great returns on FSM companies they’ve invested in.
Some firms have even become vertical software specialists, seeking out opportunities in the various sub-sectors of field services (e.g. HVAC, construction, and other emerging verticals) and applying their learnings from past wins.
PE firms who operate under this thesis represent an important buyer to include as part of a deal process.
In recent years, a category of buyer who has represented an emerging opportunity for founders has been the private equity-backed strategic.
A PE-backed strategic is a company that a private equity firm has added to their portfolio and to which they apply several types of growth strategies, including growth through acquisition.
Often referred to as a "platform company," it’s common for a PE-backed strategic to augment organic growth strategies by acquiring and integrating other related companies into their platform. This inorganic growth enables them to take advantage of synergies and grow bigger and faster.
What Do FSM Founders Need to Know?
The key takeaway for FSM founders is that running a process in this space is not about rounding up the usual suspects (i.e. large-scale FSM providers and PE firms). Rather, founders will realize a more competitive outcome if they run a broader process that includes out-of-sector strategics and PE-backed strategics.
Generally speaking, the urgency to acquire a limited number of "on-the-market" FSM companies is driving valuation up. As a result, founders who are thoughtful about who they include in a process will hardly have a difficult time realizing a premium valuation.