November 8, 2024
Who Are the Current Buyers of HOA/Condo Management Companies?

As previously mentioned, there has been a significant shift in investor interest in the HOA and condo management industry in the last decade. Today, various private investment firms have staked their claim in the industry, in addition to the existing large strategic players. We will lay out the landscape in this article.
Large Independent Management Companies
Large independent management firms have existed in the industry for several decades now, and mostly acquired businesses without significant competition for a long period. The main players with this designation are FirstService and Associa. Neither business focuses exclusively on HOA/condo management but instead operates in the HOA/condo space as part of a broader property management focus. Large strategics have the benefit of (1) significant M&A resources, (2) well capitalized balance sheet and rigorous approval processes and (3) integration teams.
Other Independent Management Companies
Sitting behind the larger independent strategics in size is a longer tail of small and medium sized management companies that have the staff and capabilities to execute an acquisition. These management companies typically buy only in tangential areas to their own geography to minimize any oversight risk. While they likely can't pay top dollar (given funding constraints relative to other buyers), they provide perhaps the greatest certainty to sellers that employees and clients will be maintained through a transition period.
Private Equity
Private equity firms typically seek a "platform" sized transaction from which to wedge their way into an industry, with consolidation and build-out of ancillary services typically the ultimate goal. A typical platform might do $2M+ in EBITDA (more on this in a later article). PE firms have committed equity capital, meaning little to no risk of funding the equity piece of the transaction, but must still seek debt financing for that piece of the transaction that they wish to fund with others' capital. PE firms will conduct rigorous diligence, as the team needs to present to its own internal investment committee to attain deal approval. Private equity firms target a 20%+ return on their equity investment, while their floating rate borrowing costs fluctuate with market terms. A broader interest rate increase lowers the value private equity firms are willing to pay for management companies, since their debt funding costs increase.
Private Equity-Backed Strategics
Once a private equity firm has selected and invested in a "platform", that platform is ostensibly the acquiror going forward. As disclosure requirements for M&A don't exist, it may be difficult for a seller to know if they're transacting with a private equity-backed platform, without asking for more details on where the deal capital originates from. Private equity-backed platforms will take a similar (but higher velocity) approach to Independent Management Companies - build scale in a given area through density of acquisitions, then branch out into a new geography (via acquisition) and repeat, sometimes concurrently.
Independent Sponsors
Independent sponsors look and feel like private equity firms, but are often very small in personnel (1-5 people) and lack committed equity funding. When conducting a transaction, independent sponsors must go to the capital markets to fund both the equity and debt, thereby raising transaction completion risks for the seller. Independent sponsors may typically seek smaller transactions to wedge their way into the industry, before running the same consolidation playbook as others.
Impact on Market Dynamics
CAM Advisors' view is that, in 2024, Private Equity-backed strategics have been the most acquisitive (by volume of transactions) group. Approximately 10-15 private equity firms have now invested in the HOA/condo management industry and each is actively seeking acquisitions to bolt on to its platform. Sellers should continue to be vigilant and conduct mutual diligence on their potential acquirors.
For more information on the HOA management industry, valuation metrics, or other questions, please contact contact@camadvisors.co
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