Cleaning companies catch private equity’s attention

The janitorial sector has re-emerged as a target for private equity, after sponsors paused on the industry to see whether the boom in pandemic-era demand and earnings growth would hold up over the long term.

“There was a pause for a couple of years as private equity thought janitorial businesses were inflated,” according to Disha Mehta, a managing director at Houlihan Lokey. Sponsors waited to see what stable, post-pandemic earnings would look like. “Fast forward to 2025-26, the sector has emerged again as an essential service that is not going away.”

In our ongoing series of private equity investments in business services that are insulated from AI disruptions, we turn to the janitorial sector. Over the years, the sector has seen investments from PE firms of all sizes, a sign of the growing appeal of the cleaning business, especially those serving big institutions like schools, retail, commercial offices, healthcare facilities, data centers, among others.

Several firms operate in this sector. O2 Investment Partners has a portfolio called 4M Building Solutions, a commercial cleaning and janitorial services platform based in St Louis, Missouri. The company recently acquired Bluegrass Commercial Cleaning, a Mayfield, Kentucky-based company and Rainbow Maintenance Services, an Elgin, Illinois-based company. These two represent 4M’s 15th and 16th acquisitions since partnering with O2 Investment in January 2023.

Other players include San Francisco-headquartered GI Partners. The firm has a long history of investing in the janitorial and facilities management sector. In 2014, GI invested in Kellermeyer Bergensons Services, a national provider of janitorial and facilities services and exited the company in 2019 to Cerberus Capital Management after helping KBS grow revenue from roughly $400 million to about $900 million.

KKR, Ares Management and BlackRock are now the majority owners of KBS through a recapitalization event in 2024.

Here are four factors that are helping create opportunities for private equity within the janitorial and related facility management businesses:

1. Nondiscretionary business

“This is an essential service that is not going away, and it doesn’t have AI risk or robot risk,” Mehta said. “PE has started spending more time on specialty cleaning especially when they serve end markets that are viewed as non-discretionary. This theme is going to continue for the next few years.”

Irrespective of economic or political cycle, cleaning is such a small part of a larger operational budget that it is unlikely to be impacted, she added.

GI Partners recently invested in HES Facilities Management, a provider of essential facilities services to educational institutions based in Knoxville, Tennessee. Jeff Sheu, a managing director at the firm, described the non-discretionary nature of the business as one of the opportunities that his firm identified.

“Schools and universities have to keep buildings clean, safe, and running through every economic cycle, and the work scales with the physical footprint, square footage, building count and facility condition, more than with discretionary budget decisions,” Sheu said.

Historically, square footage has grown faster than enrollment, according to Sheu, adding that square footage per student rose from about 130 in 1999 to about 180 in 2018 as districts replaced and expanded buildings faster than they closed them. “This is also why declining enrollment in some regions hasn’t meant declining demand,” he said. Other long-term contracts are found in healthcare, retail and warehouse facilities.

2. Recurring revenue business model

The janitorial business is largely based on long-term contracts, especially with large institutions. “Private equity likes businesses where recurring revenue and earnings can be used to avail leverage. The small-ticket, contracted nature of cleaning allows owners to predict earnings,” Mehta said.

In education, for example, contracts are typically multi-year and switching providers is disruptive enough that retention and revenue visibility are strong, according to Sheu. “Customers weigh service quality, safety, workforce reliability, responsiveness and relevant education experience when they select a provider, including the background check, training and safety standards required to work in buildings full of children.”

3. Low capex

“This is a high cashflow generating business that isn’t going to require big equipment that has tariffs or that is impacted by [rising] fuel costs or immigration,” according to Mehta. While automation is now part of the modern cleaning toolkit, most equipment remains lightweight and designed for single-person operation.

Andrew Baldwin, a partner at Luminate Capital, said aging assets, tight budgets, labor constraints and fragmented data create demand for applications and automation that improve technician performance and lower total facility costs.

The flipside, however, is that the sector is not a very high-margin business. “You are not going to see businesses that have a 25 percent EBITDA margin but there are stable margins if the business is run well,” said Mehta.

Along with Five Elms Capital, Luminate owns Facilities Management Express, a provider of cloud-based facility and maintenance management software to over 2,600 schools, universities, municipalities and other commercial facilities headquartered in Columbus, Ohio.

4. Fragmented sector

The industry is a good candidate for roll-up strategies thanks to its fragmented nature, said Mehta. “PE firms are willing to pay a premium for a good platform because they know they can double the size of the business.”

In this fragmented market, Sheu said acquisitions can help businesses enter new and attractive geographies, build density where HES already operates and broaden what the company can do.

“Density matters more than it sounds for businesses like HES: tuck-ins in markets the company already serves cut drive time for field management and let the same regional team cover more sites,” he said.

To read more on PE investments in blue-collar business services, check out our recent feature on roofing services transactions, our laundry-focused article as well our piece on HVAC.