The Hidden Gold in HOA Management: Why Consolidators Want Your Company

Background

In recent years, the highly fragmented nature of HOA and condo management, comprising thousands of firms serving hyper-local markets, has made the industry a prime target for consolidation. National players and private investment groups are actively acquiring small to mid-sized management companies to gain scale, broaden their geographic footprint, and streamline operations. As a result, the industry is rapidly transforming, with many formerly independent firms now operating within expansive portfolios that share centralized services, technology platforms, and back-office infrastructure.

Add-On Acquisitions as a Value Driver

But the real driver of outsized returns for these investors isn’t the initial platform investment, nor the operational streamlining, it’s the consistent cadence of bolt-on acquisitions. These add-ons are where the real value creation happens: customer contracts accumulate and most importantly, valuation arbitrage kicks in. Buying smaller firms at lower multiples and integrating them into a more valuable whole allows consolidators to significantly boost returns. On its own, a platform might deliver modest gains, but layer in a series of well-priced add-on acquisitions, and the return profile improves dramatically. For consolidators, the formula is simple: buy, integrate, repeat, and watch the valuation multiple expand.

Importantly, these add-on deals often represent the purest form of upside for the acquirer. They come with lower customer acquisition costs, operational efficiencies from shared infrastructure, and critically, a lower acquisition multiple than the eventual exit multiple applied to the combined business. In short, the difference between what consolidators pay for add-ons and what they sell the rolled-up entity for is the cornerstone of their profit model. Without them, the returns are far less compelling.

In the first Exhibit, we present an example. At the end of Year 0, the investor group buys a management company with $8.0 million of EBITDA at a 10.0x EBITDA multiple, or $80.0 million. A portion of that invested capital is borrowed from lending institutions, as is typical in private investment. Over time, the management company grows nicely to $10.2 million EBITDA. The investor group sells the management company for 10.0x the $10.2 million of EBITDA, or ~$102.0 million at the end of the fifth year. What do the investors take home in profit? They generated ~$39.1 million and an annualized rate of return of 11.3% from the deal, but first must pay off their investors ("limited partners" - pensions, endowments, etc.). The investor group's limited partners, given the modest return of 11.3% (not significantly higher than the stock market's annual return) take home the vast majority of the profit, with the investor group themselves netting $2.7 million to share amongst themselves - a modest sum in the world of investing.

The addition of add-on acquisitions drastically changes the economics for the investor group. In our second exhibit,  the underlying business that is acquired displays the same growth trajectory - 5% revenue growth annually, but this time the investment group executes a number of acquisitions, (1 per year, of $1.0 million EBITDA at 8.0x EBITDA). After factoring in the acquisitions and a premium multiple (14.0x EBITDA) for the larger consolidated platform, the results change significantly. The investor group returns a whopping 23% annualized return, resulting in a profit of $114.9 million. That is shared with its limited partners, but the investor group takes home $16.9 million for themselves. The difference may seem shocking, but in reality it's "just math."

Understanding the Impact

The reality of add-on acquisitions being the primary driver of returns for consolidators has major implications for the owners of HOA and condo management firms. If you're being approached by a consolidator, chances are you're not just a target, you’re a value driver. Your business is likely being slotted into a broader growth narrative, one that ends in a higher valuation and a lucrative exit for your buyer. That makes your firm more than a local success story; it’s a building block in someone else's capital strategy.

Understanding this context is crucial when entering into negotiations. Many owners undervalue their businesses, without recognizing the outsized role they’ll play in boosting a consolidator’s enterprise value. If you’re bringing recurring revenue, low churn, and tight customer relationships to the table, you hold real leverage. Your value isn’t just what your company looks like today, it’s what it enables tomorrow.

So before signing the dotted line, owners should take a beat. Who’s buying you? What’s their long-term plan? And how many other firms are they planning to add alongside yours? These are the questions that can reframe your valuation, and ultimately, your payout. Because in the world of HOA management consolidation, being the add-on doesn’t mean being the afterthought. Quite the opposite: you may be the piece that makes the whole deal work.

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For more information on the HOA management industry, valuation metrics, or other questions, please contact contact@camadvisors.co or visit https://www.camadvisors.co/‍

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