Natural disasters are making a mess of America. Private equity wants the cleanup cash

The $200 billion US disaster-restoration industry, which runs the gamut from mold-remediation services to fire-damage repair, has traditionally been run by small, local, independent businesses. It’s how the giants in the industry got started: New York-based Belfor USA bought into the industry when it acquired a small family company founded in 1946 as Quality Awnings & Construction, while cleanup titan Servpro began as an independent painting company in 1967 in Sacramento, California. 

Restoration businesses became private-equity targets with the successive disasters of Hurricane Katrina in 2005 and the financial crisis in 2008. Katrina demonstrated the scale and potential addressable market of modern disaster cleanup; two years later, the financial crisis nudged private equity into seeking out businesses with stable cash flows in fragmented industries. The restoration industry is an investor’s dream: it’s replete with mom-and-pop operators who are guaranteed business by the ever-increasing stream of natural disasters. 

“This industry is recession-proof and keeps growing,” said JT Kraai, CEO and founder of Exit Strategies 360, which brokers merger-and-acquisition deals between private equity and restoration and remediation firms.

To such investors, hurricanes are not just a disaster but also an opportunity. Post-storm remediation (removing below-the-surface issues like mold or water damage) and reconstruction (repairing walls, replacing carpets, fixing roofs) have attracted growing financing. The cadence of storms like Hurricane Helene, whose “biblical devastation” last week caused up to $5 billion in commercial-property damage, and Hurricane Milton, which has wreaked havoc across Florida, is why the global-remediation industry is forecast to grow from $70 billion this year to $92 billion by 2029. 

With the uptick in powerful hurricanes, mold remediation alone is now a billion-dollar business. American homes have become more, not less, likely to grow mold. The widespread switch from plaster to drywall during the post-World War II homebuilding boom gave toxic black mold a petri dish for growth — panels of gypsum sandwiched between two layers of paper offer a better place to incubate than stone and brick — and in the ’70s, the push for energy efficiency and sealing homes meant less air exchange, only making it easier for mold to bloom. Stories of mold toxicity abound, like that of Melinda Ballard, whose Texas mansion became riddled with spores that made her family sick and spawned a multimillion-dollar lawsuit. That and other instances raised awareness of the dangers of mold, and the industry flourished. 

Today’s weather patterns will only accelerate this growth. Within 24 hours, waterlogged homes can grow enough fungi to cause coughing, watery eyes, and itchy throats. After Katrina, 46% of homes showed mold contamination. Unlike the sizable home-repair and maintenance industry, there’s not a lot of do-it-yourself enthusiasm for breaking down a waterlogged ranch home. Done by experts, a typical mold-remediation job can cost upwards of $3,000, and the cost of clearing an entire house can go up to $30,000. And private equity is taking notice: Threshold Brands, launched by private-equity firm Riverside, purchased the Pennsylvania-based Mold Medics franchise last year and aims for expansion across the continental US. Tim Swackhammer, the former CEO of Mold Medics, told the Franchise Times that the brand’s original store did $1.45 million in revenue in 2022, a 200% increase from 2018, the year it opened. 

Even four years ago, the remediation industry was less consolidated. Last year’s mild winter meant there was a down year for profits, which pulled down valuations and owners’ willingness to sell. Winter is the industry’s busiest season, and fewer cold days meant fewer burst pipes, a common service request, and fewer storms to send tree limbs through windows. But with 2024 shaping up to be busy on the disaster-recovery front — on top of the deadly hurricanes, a colder winter is being predicted — that will likely change. Already this year, a number of investments, like Point 41 Capital Partners’ acquisition of Georgia Water & Fire and Summit Partners’ investment in remediation company Insurcomm, are being discussed as ways to “enter a new and expanded era of growth.”

Many private-equity-owned groups have grown considerably in just the past four years as roll-ups continue. Take Belfor, owned by private-equity firm American Securities. By 2018, the company was making $1.95 billion in revenues, and since then it’s acquired more than a half-dozen other large firms. From late 2020 to this past April, ATI Restoration acquired 15 companies. AEA Investors’ Blackmon Mooring bought 11 companies in the last 4.5 years. BluSky picked up 10 smaller firms between 2021 and 2023 alone and now does business in 40 states. Blackstone owns a majority share in Servpro, an industry giant that’s played a role after many of the nation’s more recent high-profile disasters.

A majority of the nation’s restoration firms make between $1 million and $10 million in revenue annually doing what’s called large-loss work — like fixing a library whose roof collapsed from heavy snow accumulation. The industry’s big names have what are called “cat divisions,” for catastrophes, that deal with FEMA. This can be a high-risk, high-stakes game because federal reimbursement can take years. Right now, any company east of the Mississippi with this kind of division is focused on Helene and Milton, and as long as you have the capital reserves to wait to be repaid, it can be very lucrative. After Hurricane Ian, in 2022, FEMA paid nearly $4 billion via the National Flood Insurance Program to repair homes and businesses.

Profits jump during hurricanes, Belfor CEO Sheldon Yellen told Forbes, but repayment delays can anger temporary hires — he said he’s been punched by a carpenter and threatened at gunpoint by a drywall installer over late payments. But there are challenges to increased consolidation, especially when it concerns firms and their valuations. Getting one big year’s worth of profit from a hurricane may convince an owner they’re worth more, but investors might not look at it that way, seeking to instead average out annual profits. 

Large-scale disaster cleanups have been found to leave their own messes in the wake of natural disasters, ranging from exploitation to injury to death. Resilience Force, a group that advocates on behalf of the disaster-restoration workforce, said that this kind of work is dominated by immigrants, currently and formerly incarcerated people, and US-born people of color. The work can be dangerous and struggled with wage theft in the past. The group’s report last year, “Private Equity Profits from Disaster,” found 194 OSHA violations from private-equity-owned restoration companies between 2015 and 2022.

And, of course, there’s the elephant in the room that often goes unmentioned in presentations about how disaster cleanup is a highly profitable growth sector: the climate crisis. “A lot has been coming out for decades about the effects and impacts of climate change, and how that will only grow,” said Azani Creeks, a senior researcher and campaign manager for the Private Equity Stakeholder Project. “Even though private-equity firms and other large companies might pretend like they can still continue investing in fossil fuels with no damage, they know that this climate disaster is ramping up and is coming, as evidenced by the way they’re investing in these remediation companies.”

Patrick Sisson is a reporter covering cities, businesses, and technology.