Industry Description
The janitorial services industry in the U.S. comprises providers of cleaning services for the interior spaces of buildings and transportation vehicles as well as window cleaning operations (NAICS 56172). Providers typically operate under contractual arrangements to maintain cleanliness in buildings such as manufacturing plants, retail establishments, shopping complexes, corporate and government buildings, and private residences while also offering transportation vehicle sanitation services.
The following are some basic characteristics of the janitorial services industry:
- Janitorial services industry has a combined revenue of $97.6 billion, with a growth rate of 6.7% in 2017-2022
- There are approximately 107,300 businesses as of 2022
- The janitorial services industry employs approximately 454,300 people
Industry Trends
The janitorial services industry is highly fragmented and has low levels of market share concentration, with the top three industry operators comprising approximately 10% of industry revenue in 2022. The largest players offer an array of services, while small players specialize in niche services. Some key external factors that influence this industry are (i) hygiene concerns, (ii) cleaning technology advancements, and (iii) sustainable cleaning practices. Each of these is described in further detail below.
Hygiene concerns, mainly due to the pandemic, have led to an effort to keep workplaces and customer places clean and safe. The industry is growing post-pandemic with a market size of $55.7 billion in 2020 and is expected to reach $111.5 billion by 2030. The pandemic heightened hygiene practices in schools, office complexes, and health-related facilities. The industry has grown with the provision of more frequent cleaning services, especially in highly frequented areas.
Cleaning technology advancements have increased the use of sophisticated equipment such as robotic floor scrubbers, electrostatic sprayers and intelligent check devices for cleanliness. Managers are willing to apply these technologies to their cleaning process due to improved productivity and efficiency. These technological advancements minimize the required number of people to complete a cleaning and the amount of cleaning variation. These technological advancements have also allowed cleaners to not only meet sanitization and hygiene standards but have raised cleaning standards.
Sustainable cleaning practices are the expectation so green cleaning processes, and the use of environmentally friendly products is a must. This is due to regulatory factors as well as customer preferences for sustainable strategies. Buildings that are LEED certified require green cleaning to maintain their certification. To meet this requirement employees are trained in sustainability such as using Green Seal or EPA’s Safer Choice products to decrease their environmental impact.
The janitorial services industry in the U.S. has been influenced by external factors such as hygiene concerns, cleaning technology advancements, and sustainable cleaning practices. To meet heightened hygiene standards, integrating advanced cleaning technologies while adhering to demands for sustainable, green cleaning practices is a must. Successfully combining efficient, technology-driven processes with certified green cleaning services will retain current clients and also attract new clients.
Key Performance Metrics
In evaluating the janitorial services industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Cleaning frequency
- Cost per square foot cleaned
- Contract renewal rate
- Equipment replacement cycle
- Supplies turnover rate
- Total contract value
Industry Organizations & Publications
The following organizations publish useful information:
- Building Service Contractors Association International (BSCAI)
- Cleaning Industry Research Institute (CIRI)
- Cleaning Management Institute (CMI)
- International Sanitary Supply Association (ISSA)
Guideline Information: Private Purchase Transactions
Most janitorial services companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held janitorial services companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of janitorial services companies:
- Revenue multiples between 0.3 and 1.1 times
- Gross Profit multiples between 0.4 and 1.8 times
- EBITDA multiples between 1.5 and 10.1 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most janitorial services companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The largest publicly traded U.S. janitorial services company is:
- ABM Industries Incorporated (ABM) – $2.9 billion market capitalization
The Price-to-Earnings (P/E) ratio of this company is 38.1 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Janitorial services companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.