🧹Commercial Cleaning: Easy to Enter, Hard to Scale

This article was supported by RTC’s Research Analyst Joseph Chiang. If you are a college junior or senior with IB/PE experience interested in supporting RTC’s research, check out the internship description.

The modern legend of commercial cleaning LBOs begins with Michael Ashcroft, a British businessman and politician. In 1997, Ashcroft acquired the struggling U.S. arm of Danish cleaning giant ISS for $1.

A decade later, in 2007, he sold the business to ABM Industries for $365 million. One of the most asymmetric outcomes in outsourced services history.

In that same year, 2007, Clayton, Dubilier & Rice took ServiceMaster Holdings private for $5.5 billion, kicking off U.S. private equity’s foray into commercial cleaning at scale.

The timing mattered. Pre-GFC was the peak of large-cap LBO activity, and ServiceMaster fit the era’s appetite: asset-light, recurring revenue, and labor-driven. CD&R would later re-IPO the company in 2014, only for it to be taken private again by Roark Capital—this time at a markedly lower $1.55 billion valuation.

The “boomerang buyout” underscored both the durability of the business model and the cyclicality of valuation expectations in labor-intensive services.

Following ServiceMaster’s second take-private, several mid-market buy-and-build strategies began to pop up. One platform illustrate the modern playbook:

Some of these platforms have already exited to larger PE sponsors, validating the roll-up logic at least one turn up the ownership stack. As we’ll explore in the investment thesis, the strategy works, but the end game is less obvious. Scale creates opportunity, but in commercial cleaning, it also introduces operational and margin risk.

Yes, the underlying industry dynamics are sound and value creation via M&A achievable.

Commercial cleaning / janitorial services are as boring yet essential as it gets. It’s estimated to be a $100+ billion industry, consistently growing in low-single digits. What was the most surprising during our research was that the industry grew even through COVID, when office utilization plummeted. 

There are several reasons to believe that commercial cleaning services are here to stay. According to Kastle Systems, office occupancy rates (% of employees working in the office) have stabilized and as a benchmark, NYC’s office vacancy rates (% without a tenant) has also stabilized at ~14%.

NYC Vacancy Rate

If you’re an AI AGI doomsayer, you could theoretically believe in a world where offices are no longer needed as white collar jobs become obsolete (have fun having that debate during investment committee).  

Per Softbank research, there are over 60,000 janitorial services companies in the U.S. with top 50 companies generating 30% of the industry’s revenue.

High levels of fragmentation makes this industry the prime target for roll up strategies. And equity value can certainly be created via multiple arbitrage and modest synergies (although scale sometimes comes with “dis-synergies”, which we will cover more in the Investment Anti-Thesis section below).

Below is how commercial cleaning businesses trade today. It’s a pretty enticing LMM and MM consolidation strategy.

And even better if you are a big player consolidating a large number of local players (this math helped me understand why the PE-backed platforms were calling my dad’s clients).

A word of caution. If you are a searcher thinking of rolling up small mom & pops, you can’t solely rely on multiple arbitrage to drive returns. You have to believe in operational value creation.

So, what’s not to like about this strategy (besides getting value-trapped with mom & pops)? 

It’s hard to differentiate in commercial cleaning. Unless your client is a multi-site customer, you are likely competing head-on against local mom & pops who are the price setters. 

Here is a typical pricing model of a local mom & pop who is targeting a 30% profit margin.

Using the $1,496 as the contract price that a larger player has to bid against, below is the walkthrough to the larger player’s profits.

The 30% margin contract for mom & pops only yields a 23% margin contract for the bigger players.

There’s no better example than ABM Industries to showcase diseconomies of scale in this industry. During FYE 2025, ABM reported a 5.7% EBITDA margin. The key reason? Bloated overhead–operating expenses accounted for 34% of revenue (compared to 15% in the example above).

While the rollup thesis can work at the regional scale, anything beyond requires extreme execution discipline.

The commercial cleaning roll up thesis has two traps:
1. Value trap at the mom & pop segment
2. Overhead trap at the large-cap segment

But given the multiple arbitrage opportunity in the middle, private equity roll up activity will persist. And for those who can figure out operating models and backoffice infrastructure that can scale, there will be an outsized return opportunity.

Despite being an undifferentiated service, the underlying unit economics of commercial cleaning is still attractive:

But the question remains: how do you scale efficiently in a market where local players are the price setters? Perhaps a regional monopoly strategy, which again explains why my dad’s clients may have received acquisition offers simultaneously. 

Any topics I should cover next? Share thoughts with [email protected]
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