Home Warranty Industry Another Warranty Niche - Colonnade Advisors

1m ago
10 Views
0 Downloads
804.09 KB
8 Pages
Last View : 2d ago
Last Download : n/a
Upload by : Azalea Piercy
Transcription

HOME WARRANTY INDUSTRYMarket Commentary – February 2018Home Warranty IndustryAnother Warranty NicheInvestments and M&A activity in the vehicle service contract (VSC) industrycontinue on a breakneck pace; Colonnade has tracked dozens of transactions overthe past three years. With a flood of capital seeking related investmentopportunities, we see investor interest expanding into home warranties, a 2.3billion market.In many ways, the home warranty industry today mirrors the VSC market a decadeago, providing an interesting growth thesis. Since the mid-2000’s, VSC retail priceshave doubled to 3000 from 1500 each; new vehicle penetration rates havedoubled to more than 40%; and penetration among used vehicles has exploded withthe growth of the direct to consumer channel and the use of payment plans tofinance these high ticket consumer purchases. Product innovation, marketing, andcapital have grown the industry significantly. Low penetration rates characterize thenascent home warranty market, and we expect significant investment in productmarketing and innovation over the next decade.The home warranty market enjoys similar positive industry fundamentals as otherwarranty segments, especially the VSC market, including strong growth, marginsand cash flow. As consolidators provide a logical and ready exit path, we expect tosee interest among financial sponsors increase in this industry in the next three tofive years. Such interest can provide growth equity and/or liquidity to owners ofpromising, established home warranty platforms.OVERVIEWHome warranties involve service contracts that protect a homeowner against costlyrepairs or replacement of household systems and appliances. The most commonlycovered household items include electrical, plumbing, central heating and airconditioning (HVAC) systems, water heaters, refrigerators, dishwashers and ovensand cook tops. Home warranties include a range of coverages and typically have aterm of one year. Home warranties should not be confused with builders’warranties, which cover structural components of a residence.Most often, home warranties are purchased by the seller of a home and offered tothe buyer as part of a real estate transaction. Real estate brokers are the primarysales channel for home warranty companies. Because of the peace of mind and highcustomer satisfaction rates, home warranties experience significant renewals, oftenin excess of 50%. American Home Shield (AHS), the largest provider, posts retention1Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

HOME WARRANTY INDUSTRYMarket Commentary – February 2018rates in excess of 75%; two-thirds of its revenue is derived from existing contractrenewals. In-network service providers also promote home warranties to existingcustomers and new ones, typically during a repair call, to protect homeownersagainst future expense. Finally, home warranties are originated online and throughdirect to consumer call centers.MARKET SIZEThe U.S. home warranty (or home service contract) market is estimated at 2.3billion in 2016, involving over four million contracts at an average retail pricebetween 500 and 750. The market is estimated to be growing at 5% annually andgenerally tracks the sales of existing homes in the United States. AHS, the market’slargest participant, increased revenue by 5% to 10% annually between 2009 and2016. Source: Warranty Week and SEC filingsThe home warranty market is characterized by relatively low householdpenetration, estimated at less than 10%; although the industry’s trade organization,National Home Service Contract Association (NHSCA), claims that penetration inCalifornia is considerably higher. ServiceMaster’s AHS estimates nearly 30% ofhome resales include a home warranty. Increasing awareness and penetrationamong homeowners create significant growth opportunity for providers.DISTRIBUTIONHome warranties are sold with home resales, direct to consumer, and throughrenewals.REVENUE BY CHANNELSource: AHS2Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

HOME WARRANTY INDUSTRYMarket Commentary – February 2018Home warranties are sold through real estate brokers at the time of a home sale andare purchased by the seller. According to the National Association of Realtors,existing home resales, as measured in units, increased by approximately 3% in2016.US EXISTING HOME SALES (units in millions)Source: National Association of RealtorsWhile home warranty sales typically follow the housing market, warranty sales areexpected to increase as appliances become more complicated and difficult to repair,making a home warranty an increasingly attractive product. Home warrantiesprovide buyers peace of mind. The reliability of a home warranty’s professionalrepair network, with pre-negotiated rates, also increases the value proposition ofthe warranty to the consumer and spurs use of the product.Direct-to-consumer (DTC) sales of home warranties are marketed as financialprotection and convenience products. DTC sales are independent of a real estatetransaction and benefit from the opportunity to finance the product. DTC sales aregenerally available to customers through multiple channels (e.g., phone, web, email,mobile, social media). The NHSCA claims that industry-wide direct sales toconsumers now account for approximately one-third of all home service contractsales. In the DTC segment, AHS estimates less than 5% market penetration.3Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

HOME WARRANTY INDUSTRYMarket Commentary – February 2018CATEGORY DYNAMICSSource: ServiceMasterWhile many home warranties are originated by realtors, most of the revenue streamcomes from existing warranty holders renewing their product. Renewals aretypically offered near the end of the term via direct mail, phone call, or email.HIGH RENEWAL RATESThe home warranty industry is characterized by a high level of customer interactionand service requirements. Home warranty providers generally partner with apreferred network of pre-approved contractors to enhance distribution andincrease consumer satisfaction. This combination of a high-touch/high-servicebusiness model and the peace of mind the service contract delivers to the customerhas led to high renewal rates in the home warranty industry. AHS boasts a 75%renewal rate, and nearly two-thirds of its revenue comes from renewals.FINANCINGHome warranties, like vehicle service contracts, sold through the DTC channel canbe financed over a term up to half the length of the warranty. Financing or paymentplans can meaningfully increase sales of home warranty products. Some of thedirect to consumer sellers are providing financing in-house, and a few third-partypayment plan companies have nascent programs.INDUSTRY STRUCTUREThe home warranty market is highly concentrated, with the top four providerscommanding nearly two-thirds of the estimated 2.3 billion market. American HomeShield, a unit of ServiceMaster, posted over 1 billion of revenue in 2016, estimatedat nearly four times the size of its next competitor, First American Home Warranty.4Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

HOME WARRANTY INDUSTRYMarket Commentary – February 2018US MARKET SIZE: 2.3 billionSource: SERV, Warranty WeekThe largest ten players account for nearly 80% of industry revenue, creating asignificant barrier to entry. After the top four, the landscape is littered with roughlya hundred small companies operating on a local or regional basis. Larger playerstypically look to acquire promising providers that reach scale to cement localand/or regional coverage. Some of the larger players include: American Home Shield, a unit of ServiceMaster (NYSE: SERV), claims to bethe founder of the home warranty nearly 50 years ago, offers warranties on anational basis, and serves over 1.9 million customers. AHS commands over40% of the national market, as measured by revenue. AHS reports that itcompletes more than three million service requests per year. In 2016, itreported revenue of 1.0 billion and EBITDA margins in excess of 20%. AHSboasts that it has paid over 3 billion in claims. AHS estimates that its shareof the new sales market for contracts written in connection with existinghome resales and direct-to-consumer sales in 2016 was 30% and 55%,respectively. First American Home Warranty, a unit of the specialty insurance segment ofFirst American Financial Corporation (NYSE: FAF), operates in 39 states andthe District of Columbia and posted an estimated 300 million of revenue in2016. Old Republic Home Protection operates as a unit of the general insurancegroup of Old Republic International Corp (NYSE: ORI). Founded in 1974, thecompany operated primarily in California until launching its nationalexpansion plan in 1995.5Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

HOME WARRANTY INDUSTRYMarket Commentary – February 2018 Cross Country Home Services, a member of the Cross Country Group(Private), sells home warranties and maintenance plans nationally throughthe real estate broker channel, direct to consumers in the aftermarket, andthrough other financial services partners. CCHS launched in the 1980s. 2-10 Home Buyers Warranty (2-10 HBW), based in Denver, CO, was acquiredby Brera Capital Partners in 2002. 2-10 offers both structural warranties onnew homes and systems and appliances services agreements (homewarranties). 2-10 HBW’s structural warranties are generally 10-year policiespurchased by builders of new homes. 2-10 HBW’s Resale Warranty Divisionsells primarily through real estate brokers across the country. Fidelity National Home Warranty is a unit of Fidelity National Financial(NYSE: FNF). Fidelity’s home warranty operation results from thecombination of Alliance Home Warranty (formed in 1995) and Chicago HomeWarranty (acquired in 2000 with FNF’s acquisition of Chicago Title). FidelityNational Home Warranty operates in California, Arizona, Nevada, Texas,Colorado, Washington and Oregon.Several water and electrical utilities sell protection plans that cover appliancerepairs. For instance, Dominion Products and Services (a unit of Dominion Energy,focused on the Mid-Atlantic and Northeast U.S.) and American Water Resources (aunit of American Water) offer various home appliance and related protection plans.Source: NHSCA, Warranty Week, and SEC filingsRECENT TRANSACTIONSSignificant recent transactions are listed below.DATEBUYERSELLER2017Kingsway Financial / 13472016American Home ShieldProfessional Warranty Service Corp (newhome warranties)Landmark Home Warranty20162015201420132012200220001998American Home ShieldFidelity NationalAmerican Home ShieldNRG EnergyDirect EnergyBrera Capital PartnersFidelity NationalFidelity NationalOneGuard Home WarrantiesBPG Home WarrantyHSA Home WarrantyAllied WarrantyHome Warranty of America2-10 Home Buyers WarrantyChicago Title / Chicago Home WarrantyAlliance Home Warranty6Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

HOME WARRANTY INDUSTRYMarket Commentary – February 2018M&A OUTLOOKConsolidation is accelerating in the home warranty industry, as the largest playerscontinue to acquire well-performing, high quality local and regional players. Weexpect financial sponsor interest in the broader service contract industry,particularly the vehicle service contract industry, to spill over to the home warrantysegment. The home warranty industry enjoys compelling industry fundamentals,including strong growth, margins, and cash flows. Combined with obvious exitalternatives, the home warranty segment seems like a natural market to attractinstitutional investor interest.For more information on the Home Warranty Industry, please contact:Jeff GuylayManaging Director208.726.0788jguylay@coladv.comGina CockingManaging Director312.425.8145gcocking@coladv.comChristopher GillockManaging Director312.870.6212cgillock@coladv.comColonnade is an independent investment bank focused on the financial services and business services sectors. Colonnadeprovides expert, objective advice on mergers and acquisitions and capital raises for privately-held businesses, publicly-tradedcompanies and financial sponsors. Our senior bankers bring extensive transaction experience, industry expertise, a processorientation and a sense of urgency to each engagement.This advertisement was prepared February 1, 2018. It is not investment advice, and Colonnade undertakes no obligation to updatethe information contained herein.7Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

HOME WARRANTY INDUSTRYMarket Commentary – February 2018 2017 Colonnade Advisors LLC.Copyright and Other Important InformationThis document, including text, graphics, logos, icons, images and the selection and arrangement thereof, is theexclusive property of Colonnade Advisors LLC and it is protected by U.S. and international copyright laws.Colonnade hereby permits you, unless you are an investment bank or other financial advisor, to download, copy,distribute, publish, reproduce, cite, link or post this document or its contents subject to the following conditions:1) you retain on any material all copyright and other proprietary notices; 2) you do not modify this documentor its contents in any way and 3) you do not use or otherwise rely upon this document or its contents for anyrestricted purpose such as those described below. Colonnade reserves all rights not expressly granted.This document and the information that it contains are produced by Colonnade Advisors LLC solely for generalbackground information on the matters described. Colonnade Advisors LLC does not provide investmentbanking services and has no knowledge of your specific investment objectives, financial situation or particularneeds. In no circumstance may this document or any of its information be used for investment, valuation oraccounting purposes. None of Colonnade or its representatives or affiliates has agreed to or has assumed anyresponsibility to provide you with investment advice, whether in a fiduciary capacity or otherwise. By accessingthis document, you acknowledge and agree with the intended purpose described above and further disclaim anyexpectation or belief that the information constitutes investment advice to you or otherwise purports to meetyour investment objectives.8Colonnade Advisors LLC 125 South Wacker Drive Suite 3020 Chicago IL 60606www.coladv.comInvestment banking services provided through Colonnade Securities LLC, member FINRA and SIPC

2016 American Home Shield Landmark Home Warranty 2016 American Home Shield OneGuard Home Warranties 2015 Fidelity National BPG Home Warranty 2014 American Home Shield HSA Home Warranty 2013 NRG Energy Allied Warranty 2012 Direct Energy Home Warranty of America 2002 Brera Capital Partners 2-10 Home Buyers Warranty .

Related Documents:

maintenance records or home inspections. WHY AMERICAN HOME SHIELD? American Home Shield founded the home warranty industry in 1971. Today, with 1.8 million members, we're America's most preferred home warranty. We also pay the most home warranty claims — more than 2 billion over the past five years. And we have a nationwide

A home warranty is an important selling tool for anyone who is selling a home. By having a home warranty on your listed home, you are showing prospective buyers that you are backing up what you are selling. By having a home warranty on your listed home, you also receive coverage. If any covered item should break while your home is listed, all .

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

What is a Home Warranty? While you're building a lifetime of memories, Old Republic Home Protection keeps your home protected with our comprehensive home warranty plans. Home is where the heart is. ORDER TODAY AT ORHP.COM OR CALL 800.445.6999 REQUEST SERVICE AT ORHP.COM/HOC OR CALL 800.972.5985 Home Warranty Advantages Learn more at orhp.com.

American Home Shield Home Warranty What is a Home Warranty? An American Home Shield Home Warranty is a one-year service Agreement that covers the repair or replacement of many major home system components and appliances that typically break down over time due to normal wear and tear. * Subject to a 2,000 cap for all trades during the listing .

American Home Shield Home Warranty What is a Home Warranty? An American Home Shield Home Warranty is a one-year service Agreement that covers the repair or replacement of many major home system components and appliances that typically break down over time due to normal wear and tear. * Subject to a 2,000 cap for all trades during the listing .

Seven Home Warranty Companies in AZ These are the following home warranty companies That we support. Here are some bullet points of The various Home Warranty companies. AHG Home Warranty - - "Standard" Plan at 375.00 does NOT include Washer, Dryer, and Kitchen Refrigerator - Their "Guardian" Plan at 525.00 does

is the first Home Warranty based on a structural, mechanical and electrical home inspection. By completing a home inspection prior to issuing warranty coverage, a more complete and extensive policy can be issued on your home transaction. Advantage Home Warranty is the only home warranty compa

What is a home warranty? A home warranty is a renewable service contract offering protection for a home's major systems and appliances. First American offers protection to homebuyers, sellers, and current homeowners. A home warranty can protect home sellers from costs and delays during the listing period as well as protect homebuyers from

registered and that home warranty coverage has been issued on your prospective new home. The New Home Buyer Protection Act and Regulations came into effect on February 1, 2014. In order to obtain a building permit for a new home, all residential builders must provide proof of 1-2-5-10 Year New Home Warranty coverage from an approved warranty

Limited Warranty #8319 Application For Warranty form #8316 (Refer to I.B.3 for applicability) Warranty Confirmation This Limited Warranty does not cover consequential or incidental damages. The Warrantor's total aggregate liability of this Limited Warranty is limited to the Final Sales Price listed on the Application For Warranty form.

Home warranty service agreements are provided as 2-10 HBW by 2-10 HBW Warranty of California Inc. in California; Home Buyers Warranty Corporation VI in Florida; 2-10 Home Buyers Warranty of Virginia, Inc. in Virginia; and Home Buyers Resale Warranty Corporation in other states (OR Lic # 202003). New construction structural warranties are .

Enjoy Your Home First American offers affordable home warranty plans that can save you time, energy and thousands of dollars on covered home system and appliance repairs. If you're selling your home, a home warranty is a great way to minimize the risk of costs and delays during the listing period, giving your home a competitive advantage.

API RP 581 is a well-established methodology for conducting RBI in the downstream industry and the 3rd edition of the standard has just been published in April 2016. This paper examines the new features of the 3rd edition particularly for internal and external thinning and corrosion under insulation and it also discusses a case study of application of this latest RBI methodology in France .