Industry Spotlight: Why You Should Buy a Roofing Company - Acquira

Industry Spotlight: Why You Should Buy a Roofing Company

What You’ll Learn
  • Why roofing is recession resilient.
  • The difference between commercial roofing and residential roofing.
  • The basic requirements for any roofing company.
  • How to adapt a roofing business depending on the location and local weather.

As entrepreneurs embark on their journey to acquire a business, one of the biggest hurdles they will encounter is what type of company to buy.

It makes sense that people would prefer to buy something in an industry they’re familiar with but that isn’t always feasible. After all, you shouldn’t  pass up a great deal just because you don’t fully know the business. 

There are a number of industries ripe for growth, even in tough economic times. At Acquira, that’s one reason why we love home services businesses. They’re recession resilient, they often have an established clientele, and they provide a service that everybody needs. 

Roofing is a prime example of this type of business. Not only can it stand up to the pressure of recessions, but it’s also a business that isn’t based on trends or market movements. After all, everybody needs a roof. 

Finding roofing companies for sale is as easy as searching a site like BizBuySell, but before you do that you should try and understand the industry as much as possible.

Why Is Roofing Recession Resilient?

The idea of constantly emptying pots and bowls wears thin quickly. So you can only put off a leaky roof for so long.

Food, water, and shelter are the cornerstone necessities of life. As a result, it’s generally considered sound advice to invest your money in any business that can provide one of those necessities.

Food, water, and shelter are the cornerstone necessities of life. As a result, it’s generally considered sound advice to invest your money in any business that can provide one of those necessities. 

In fact, if you look at the trends surrounding publicly traded roofing companies in the following graph, you can see that they tend to perform very well as economic hardships ease up. Owens Corning and Beacon Roofing Supply are two of the biggest publicly traded roofing companies on the market.

Image: Yahoo Finance

As Trevor Soare points out on SeekingAlpha, both companies took a big hit around the recession of 2008. However the following year the two stocks outperformed the SPY by an average of almost 200%, Soare explains.

(The SPY ETF is the SPDR S&P 500 Trust ETF. This popular fund aims to track the Standard & Poor's 500 Index, which is comprised of 500 large- and mid-cap stocks. The fund is considered a way to track the health of the overall economy.)

The reason for this is simple, according to Soare: “The idea is that a leaky roof will always take priority over the latest smartphone or a new car.”

Commercial Roofing Vs Residential Roofing

If you’re completely unfamiliar with how the industry operates, it’s important to know a few key factors before you start a roofing business.

Before any AEs start busting out the shingles and scaling three-story ladders themselves, there’s one important distinction to make: there is a big difference between residential roofing and commercial roofing.

Fortunately, both types of companies have a lot of potential and many companies do both residential and commercial work. Still, it’s good to understand the difference, both in terms of revenue and the amount of work involved.

Residential roofing involves the maintenance and repair of roofs for houses. Commercial roofing is concerned with office buildings, apartment complexes, schools, factories, and anything larger than a family home.

Residential roofing involves the maintenance and repair of roofs for houses. Commercial roofing is concerned with office buildings, apartment complexes, schools, factories, and anything larger than a family home.

Let’s look at some of the biggest differences.

1. Design

This is the most obvious difference between commercial and residential roofs. With commercial roofs, the slope is almost always very low or completely flat. Think warehouses, factories, and apartment buildings.

Commercial roofs are also almost universally larger than residential roofs and they tend to house heavy items like industrial-sized HVAC units and piping.

Commercial roof

Residential roofs are more slanted and they usually won’t have anything sitting on them (except possibly solar panels, or small exhaust vents, or skylights.)

Residential roof

2. Materials

Depending on the design of the roof, the overall cost, and the prevailing weather conditions of the area, the material you use will be different.

Asphalt shingles are king in residential roofing. They’re easy to install and cost-effective. Other popular materials include metal panels, slate, wood shakes, tile, and ceramic.

Plywood is usually nailed into the wooden rafters of the home to create the roof deck before the roofer lays down a waterproof protective underlayer. They then install the shingles or tiles.

Because commercial roofs are usually flat, they require different materials. Usually, roofers use modified tar, gravel, modified bitumen, polyurethane foam that is sprayed onto the roof, or single-ply coverings.

Commercial roofs are built in multiple layers including the insulation, decking, protective coat, and reflective coat.

3. Installation and Repair

Commercial and residential properties each offer their own unique challenges when it comes to installation and repair. 

Commercial roofs can take a month or more to install thanks to their sheer size and the number of layers involved. Residential roofs can usually be completed in just a few days.

Commercial roof repairs are generally major undertakings. If water manages to make its way through the layers of a commercial roof, the entire thing needs to be assessed. With residential roofs, leaks are usually isolated to spots where shingles are becoming loose. The repair can usually be completed within a few hours whereas commercial roof repairs can take anywhere from a couple of days to a couple of weeks or more.

The skill level of the roofer is important to consider as well. Commercial roofers need to have an understanding of a number of different building materials as well as how to properly install, repair, and patch each of them. The skillset of residential roofers is less specialized.

Commercial Vs Residential: How Do Post-Pandemic Revenues Look?

Looking into the numbers, the median revenue for residential roofers in 2019 was $500,000 to $999,000, according to Roofing Contractor's State of the Industry Report. Those numbers are, of course, pre-pandemic but many professionals agree with Soare and believe the industry will bounce back quickly.

75 percent of residential roofers said they expect sales to increase even further in 2021 over 2020.

Nearly half (49%) of residential roofers said they expected their 2020 annual sales to increase compared to 2019. Furthermore, 75 percent of residential roofers said they expect sales to increase even further in 2021 over 2020. 

This could be attributed to the fact that, due to the pandemic, people were unable to go on vacations and had to work from home. In doing so, they had more time to notice problems with their roofs and sought the help of contractors,” wrote the study’s authors.

Turning to their commercial counterparts, in the midst of the 2020 lockdown nearly half (45%) of commercial roofers said their sales were up from the previous year. Meanwhile, a majority of those same respondents (68%) said they expect sales to increase again this year.

According to a separate study done by Kingdom Roofing, 78 percent of roof business professionals believe commercial roofing sales will continue to grow into 2021.

 While most commercial roofers won’t unveil their annual revenue, the overall commercial roofing materials market is estimated to reach $266 billion by 2024, according to Kenneth Research. If commercial roofers are planning on buying that much material, we can assume they plan on being very busy in the coming years.

Licensing Requirements By Region

Most states within the union require roofing contractors to register with the local government, but that isn’t universal. If registration is required, it usually comes with fees that often need to be renewed each year.

It’s important to note that the registration isn’t necessarily called a Roofing License, and is usually more generally referred to as a contractor’s license.

Many states also require that any contractor have insurance before they can complete the registration process. Some states allow homeowners to look up the credentials of contractors. 

Because laws change regularly, we’ve compiled a list of states for you. The links connect you to each state’s contractor registration website. If a state does not have a link, it likely doesn’t require you to register.

AlaskaKentuckyNew YorkVirginia
ArizonaLouisianaNorth CarolinaWashington
ArkansasMaineNorth DakotaWest Virginia
CaliforniaMarylandOhioWisconsin
ColoradoMassachusettsOklahomaWyoming
ConnecticutMichiganOregon
DelawareMinnesotaPennsylvania
FloridaMississippiRhode Island
GeorgiaMissouriSouth Carolina
HawaiiMontanaSouth Dakota
IdahoNebraskaTennessee
IllinoisNevadaTexas
IndianaNew HampshireUtah
IowaNew JerseyVermont

The Weather Effect

It’s also important to consider the local weather when buying a roofing company. Residential roofing in Lubbock, Texas where they have tons of hail is significantly different than residential roofing in Scranton, Pennsylvania where water damage is more likely.

Many people may not realize that Texas has the most hail and wind claims of any state. The April 2016 hailstorm there was the most expensive ever, costing approximately $1.4 billion.

If you’re already looking for roof restoration businesses for sale, it’s important to consider the main weather elements that can impact a structure’s roof.

  1. Sun

All roofs will be exposed to the sun’s ultraviolet rays. It’s inevitable. Shingles that are constantly exposed to the sun will become cracked and brittle.

Extreme heat and drastic temperature changes can also cause roofing materials to shrink or expand over time, leading to damage.

  1. Rain

If an area has heavy and consistent rainfall, small leaks will be more common. If these leaks go unnoticed they can often lead to significant damage. If the rainfall is continuous, it can create puddles on rooftops which can weaken certain areas of the roof and cause moisture damage.

  1. Snow/Hail

During the winter, ice can build up along the edges of the roof which can damage the roof as well as the gutters. If the gutter system is damaged, that can threaten the building’s foundation as well. 

Heavy hail can cause structural damage to shingles and roofs. If not addressed quickly, this damage can allow moisture into the wood.

Ice dams are also a threat. These ridges of ice can build up over time. When they begin to melt they cause moisture to seep under the shingles and freeze again when the temperature falls.

Build Relationships to Create Annual Recurring Revenue

Now that we have a basic understanding of the roofing business as it exists today, let’s explore some ways to improve on the existing business models. 

One of the interesting things about roofing–and many home services companies in general–is that there is a lot of room to introduce recurring revenue models to the business.

HVAC is one industry where an annual recurring revenue component has become relatively standard. But that component didn’t exist a decade ago.

The idea is that you want to give your customers peace of mind. To do that, you can offer a package where you inspect their roof once or twice a year in exchange for an annual fee. In the HVAC industry, many companies now provide inspections before the winter and before the summer. They change filters, make sure the vents are clean, and fix anything that has fallen into disrepair.

This is good for the business for a number of reasons. For one, it keeps the company’s technicians busy during downtimes. It also gives the business an opportunity to sell more things, whether it’s a deep cleaning, a new thermostat, or other new products or services. 

If you’re able to find the correct price, it can be like a membership club. Your customers pay a certain amount each month and they receive peace of mind. It’s like an insurance policy that can include labor and parts. 

These sorts of programs allow companies to create long-standing relationships with their customers. If you’ve seen the same person every year for the last five years, when something goes wrong you’ll be the first person they’ll call. 

Another component of the industry is that houses and commercial properties switch hands after a certain number of years. If a person buys a house in Scranton, and the roof was inspected seven years ago, they won’t know who did the work or if it was done well. 

But if the home seller has a maintenance agreement with a company, they’ll likely pass it on to the new homeowner. And then, the company has a much better chance of getting that new contract as well.

Preparing For The Future

This doesn’t exist in the roofing industry today. But it barely existed in the HVAC sector 10 years ago. If you’re able to take lessons from other sectors and apply them to your business, you’ll be able to create new revenue streams and experience new levels of success.

Acquira has already done a few deals within the space and we’re looking to do more. If you’ve come across a roofing company that looks like a good deal, schedule a call with us and let us know.

Whether you’re thinking about starting a roofing company or you’re just getting started on your entrepreneur journey, you should start with our Acceleration Gauntlet. It will provide you with all of the training and resources you need to get started.

We know that many people have had problems with their roofs in the past and those often make for great stories. We’d love to hear about your experiences in the comments below. And if you found this article useful, please share it around.

Key Takeaways

  • Roofing businesses are recession resilient.
  • Historically, the industry bounces back after economic downturns.
  • Commercial roofing and residential roofing are both good potential acquisition options.
  • Local weather and state licensing requirements will impact your business.
  • You should consider implementing a recurring revenue model for the business.

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