The torrent of private equity money flooding the roofing industry continues unabated as white-shoe banker Morgan Stanley announced on May 1 its midmarket-focused private equity team at Morgan Stanley Capital Partners acquired Allstar Services, a full-service residential contractor.

Allstar, based in Minneapolis, Minn., and led by company Chairman Pete Carlson, is a full-service provider of residential exterior replacement, repair and maintenance services across trades, including roofing, siding, windows, and gutters. Carlson will continue to lead the business while partnering with MSCP. Founded in 1979, Allstar primarily operates in the Minnesota, Wisconsin, North Dakota and South Dakota markets.

"We believe that the consolidation opportunity is in the very early innings..."

— Adam Shaw, managing partner at MSCP, told PE Hub, an online news website covering private equity, describing the concentration within the roofing contracting sector.

MSCP said in a news release that, in conjunction with management, it is seeking to scale the business to be a leading national platform over the coming years. According to an interview with PE Hub, an online private equity news website, MSCP’s managing director Adam Shaw said the highly fragmented residential services sector is attractive because it involves expenses that are often “non-deferrable,” meaning the roof is leaking and needs a fix sooner than later. The other attraction Shaw identified is private equity’s ability to scale such operations, thus making it financially attractive for investors with a mid-range horizon on investment returns. 

For the residential roofing that Allstar, a leading regional platform in the residential exterior services segment, focuses on, Shaw said the sector represents a $40 billion market

“Residential roofing is an analog industry that is dominated by unsophisticated, undercapitalized mom-and-pop providers,” Shaw told PE Hub, adding that sophisticated financiers can help individual concerns scale and outpace industry growth, gaining market share. “Scaled operators have been able to grow five times [the] industry average over the past five years, consistently driving double-digit organic growth.”

The investment in Allstar marks MSCP’s third investment in residential services following the acquisitions of Fairway Lawns, a provider of recurring residential lawn treatment services, in May 2022 and Sila Heating & Air Conditioning in May 2021. 

MSCP says it intends to accelerate Allstar’s add-on activity and will seek to partner with leading companies to support their employee and customer bases and provide capital and resources to accelerate their growth.

Given the size of the market and the limited market share of any market leader, Shaw said outcompeting a favorable competitive landscape and winning market share allows these scaled platforms to grow regardless of the broader market trends.

“We are excited to partner with Pete and the Allstar team as they continue building a leading platform across residential exterior services,” Shaw said in a statement. “For MSCP, Allstar marks our continued efforts within residential services, where we plan to execute against our core playbook of investing in focus sub-sectors which we believe will allow us to drive value creation through key strategic and operational initiatives.”

For the success of the platforms, MSCP said it will pursue both organic and inorganic strategies. Organically, the firm believes there is “a material opportunity to optimize customer acquisition and improve service delivery through some sophisticated strategies and tech enablement.” The approach dovetails with how consumers are becoming increasingly sophisticated in seeking contractors and product information through digital resources.

“Similarly, we believe there is a compelling opportunity to improve service delivery through greater technology enablement in the field,” Shaw said in the PE Hub interview. “We believe that the consolidation opportunity is in the very early innings and believe there is a very tangible opportunity to quickly build the leading national platform in the space.

“The roofing and other exterior services industries do have some cyclicality, but the vast majority of the industry is non-deferrable and non-discretionary and therefore have fairly limited cyclicality,” Shaw added.