TruGreen and Scotts LawnService plan to spend 2016 focusing on integration–a monster task, considering the combined company will have 2.3 million customers and $1.3 billion in revenue.
The joint venture resolves to retain both customers and employees in the new year, according to President and CEO David Alexander. He spoke with LM following the announcement on Dec. 10 that the two largest companies in the lawn care industry would merge under the TruGreen brand.
Alexander said keeping associates is just as important as keeping customers. Scotts LawnService (SLS) has a half million customers, and TruGreen doesn’t have the capacity to serve that many customers as is.
“If, at the end of the year, we’ve been very successful at those two things, it’s going to be a great integration,” he said.
TruGreen, which reportedly lost 500,000 customers from 2010-2013, reports progress in several metrics it deems vital to its success, including customer retention rates, Net Promoter Score and its “voice of associates” metrics.
“The progress has been fairly substantial the past two years,” Alexander said. “We’re now in a position where we could do things like this (merger).”
Better financial performance helps, as well. TruGreen will net $85 million on a billion dollars in revenue in 2015, Alexander said. Compare that to losing $5 million in 2013 on nearly $900 million in 2013 revenue (from a pro forma standpoint, looking at standalone costs) as part of ServiceMaster. The company made about $46 million on $936 million in 2014 revenue.
“We needed to spend a few years rebuilding our business, and we did that,” he said.
Steps to integration
The first step to integrating two large companies is evaluating the network and what changes need to be made, Alexander said.
“The first part of year will be about understanding that,” he said. “The middle part of the year will be about integrating, and by the end of the year we will have a fully integrated company.”
When asked how many markets have branch overlap and could see location closures, Alexander said he doesn’t know.
“I made that comment to our team the other day because we haven’t made any decisions about that,” he said.
Market overlap can be misleading, Alexander said, because the locations may be on opposite sides of a city or it may not make sense to close a branch from a growth standpoint.
The company has hired management consulting firm Kurt Salmon to analyze customers at the zip code level to identify how they can be best served in terms of route density, drive time, a location’s five-year growth capacity and other operational factors.
“A lot of assumptions about which branches might move and close may be wrong,” Alexander said. “We’re trying to start at the customer level and build upward.”
Additionally, Alexander isn’t sure how many job cuts there will be at the corporate level, as SLS’s administration merges with TruGreen’s in Memphis. SLS President Jim Gimeson will join TruGreen as COO. Otherwise, some employees may stay with Scotts Miracle-Gro in Marysville, Ohio, and some employees may join TruGreen, but it’s too early to put numbers on anything, Alexander said.
Acquisition impact
Alexander also said it’s too soon to say how the merger will affect SLS’s acquisition of Action Pest Control.
“We have no intention not to continue to operate it,” Alexander said. “We’re excited it’s part of the acquisition.”
TruGreen said the deal doesn’t change its strategy on the irrigation market. The company announced its entry there last month after piloting the service at eight branches in 2015.
Next year TruGreen will expand irrigation to about 20 branches and measure its impact on the P&L, Alexander said. The company plans to roll out irrigation to the majority of branches by 2017-2018.
As for its acquisition strategy in the coming year, TruGreen will focus primarily on the SLS integration, but it won’t rule out acquiring more companies, Alexander said.
TruGreen made no acquisitions in 2014 and acquired four companies in 2015, including Team Green Lawn, Xenia, Ohio; Lawn Master Quality Pays, Tulsa, Okla.; Grassman, South Windsor, Conn.; and Noon Turf Care, Marlborough, Mass.
