Our previous discussion of the home warranty industry highlighted the strong fundamentals and drivers of M&A activity in this market. The home warranty industry enjoys compelling industry fundamentals, including reoccurring revenue, and strong growth, margins, and cash flows. The largest players continue to acquire well-performing, high-quality local and regional players. Combined with obvious exit alternatives, the home warranty segment seems like a natural market to attract institutional investor interest.
In this report, we highlight four major themes relevant to M&A activity:
- The big are getting bigger;
- Industry players benefit from strong retention and renewal rates;
- The market is growing despite low penetration; and
- The outlook is promising for independents looking to sell as financial sponsors and consolidators continue to acquire.