Smart Home Tech Eyes the Services Space to Boost Multiples
How Daisy aims to become a national brand in smart home technology through recurring services
In a challenging M&A environment, dealmakers looking for resilient niches continue to find plenty of growth potential in the home services space.
The 2024 Home Services Survey, released earlier this month by Harris Williams, found that with more than 80% of consumers either maintaining or increasing home services spend this year compared to two or three years ago, the sector demonstrates “strong recession resilience.”
“The data also shows that home services demand remains steady through uncertain macro environments, political elections and interest rate policy changes,” noted Harris Williams Director Zach Ledwith in the report.
As with virtually any sector, however, the home services market is rapidly evolving as emerging technologies that control everything from lights and temperature to perimeter security disrupt the space. The rise of smart homes, say experts, has sown the seeds for a greenfield of value creation opportunity, with Fortune Business Insights forecasting the smart home technology market—currently valued at more than $121.5 billion—to grow to $633 billion by 2032.
“Smart house technology is part of a theme we have been investing behind for more than 10 years,” notes Alan Goldfarb, founder of private investment firm Orangewood Partners, who adds that Orangewood’s investments in the cell tower industry aim to support growing demand for data infrastructure as a result of smart house proliferation. “The thesis that we believe still exists today is that most things—business and consumer related—will be connected through technology advancement.”
A Blooming Market
Hagan Kappler saw the growing adoption of smart home technology, and the resiliency of the home services space, and decided to fill a gap in the market for smart home services through her founding of Daisy.
The company offers consumers and businesses smart home technology products including audio/visual systems and lighting, as well as tech management and maintenance services. The Costa Mesa-based company also offers a solution for homeowners to customize the integration of their various siloed technologies into a streamlined smart home system.
Kappler, who is also CEO of Daisy, tells Middle Market Growth that the home services industry offered a powerful blueprint for the business. “Our team is coming at this from a home services mindset, meaning we have backgrounds in home cleaning, pest control, HVAC,” she says. “So we’re thinking about it from a consumer mindset. Our clients are pretty high-end, and they expect to have someone coming by and helping them. A cleaner shows up once a week, a landscaper shows up once a week, a pest control person shows up once a quarter. I’m looking around thinking, ‘Where’s my tech guy?’”
Demand for smart home services like repairs and tech integration are expected to rise as the number of connected devices in the home grows. Deloitte’s Connectivity and Mobile Trends survey found an average of 22 connected tech, entertainment and/or smart home devices in each U.S. household today, while nearly one-third of consumers surveyed who have at least 20 devices reporting they feel overwhelmed by managing them all.
That presents a major opportunity for the smart home technology services market, according to Kappler. “Robots are cool,” she says, “but they are going to break.”
Robots are cool, but they are going to break.
Hagan Kappler
Daisy
Raising the Multiple
Daisy aims to secure a 20% market share in this space, a goal Kappler acknowledges is “audacious.”
“In order to do that, you have to have a combination of both acquisitions and organic growth,” she says.
In terms of organic value creation, the founder says Daisy has invested heavily in its support center and tech stack, while also prioritizing talent acquisition and retention. Kappler says Daisy offers competitive compensation, robust HR support and upskilling initiatives like training programs and career paths that can lead technicians to one day owning their own Daisy franchise.
Integrating its franchise model was also vital for Daisy’s plan of becoming a national brand. The strategy drives geographic expansion while arming franchisees with solutions that have first been tested and approved by Daisy itself, and tools that independent mom-and-pop operations may not otherwise have the resources to access.
Identifying those needs of smaller players in this space has also driven Daisy’s M&A strategy.
Deal sourcing began with highly personalized letters to companies, with about a 50% response rate, says Kappler. But that wasn’t the only factor that shaped its acquisition efforts. “We did add a lot of personal touches to our outreach,” she notes, “but also, there is no real exit plan in this space. There’s no clear succession plan.” Offering business owners a way to exit the market, or identifying acquisition targets that are leaders in their own geographic markets, has led Daisy to acquire seven companies so far.
Multiples in the market remain low, especially compared to other players in the home services category. “That’s driven by the fact that these small businesses just do not have the support and resources you see in other home services sector that have been receiving investment, like HVAC and pest control,” says Kappler. There is no back-office tech stack offered to the smart home technology services market, she adds, pointing to a lack of CRM, accounting and other solutions designed for the space.
Through both its franchise model and its M&A strategy, Daisy hopes to capitalize on the growth and value creation potential of the market. Multiples in the smart home tech and services space are in the one-to-two-times EBITDA range, says Kappler, compared to the high double-digits seen in other pockets of home services like housekeeping and HVAC. Yet with technology offerings in price points far higher than those often seen in pest control or lawn care, and with the opportunity for recurring services, the smart home tech market is “just starting to scratch the surface” of what valuations could reach, according to Kappler.
“This is a really underinvested, untapped industry,” she says. “There is a path to get comparable multiples to pest control and HVAC, if not much higher.”
Rapid Innovation
Daisy has certainly made a name for itself in smart home technology M&A, most recently with the acquisition of smart home automation installation service provider and franchiser SaaviHome in September. The deal was supported by a $7 million Series B funding round, following Daisy’s $11 million Series A round last June.
Elsewhere, strategics and venture capital-backed startups have driven other deals in the smart home market. In 2022 ADT acquired IOTAS, a smart home and smart apartment automation company. Also in 2022, about a year after going public in a $100 million IPO, smart home tech manufacturer and distributor Snap One acquired smart home security system maker Clare Controls.
A search in middle-market search engine Grata reveals 20,236 businesses operating in the smart home market; about half operate with a services model, 4,840 of which in the U.S. That means plenty of consolidation potential for investors that will also find widespread innovation not only in the smart home technologies developed, but in how they are used and managed.
Increasingly, smart home technology is no longer reserved as a flashy tool for the ultra-wealthy. Instead, the market has begun to embrace solutions that can monitor energy usage and support decarbonization initiatives, ease accessibility and functionality for those living with disabilities, improve sleep through eradicating blue lights and monitoring circadian rhythms, and support aging-in-place with technologies that enhance safety, health monitoring and more.
According to Orangewood’s Goldfarb, one of the largest areas of investment potential is in supporting the data infrastructure that will be needed to support the burgeoning market. “Smart house technology … will continue to stress current infrastructure,” he says. “However, we believe it is still in the early innings of this long-term game, and therefore should continue to present considerable investment opportunities for the foreseeable future.”
For Daisy’s Kappler, that opportunity lies not only in playing a role in smart home tech adoption, but in the recurring servicing of those solutions. “There is a whole lifetime of a client that we want to make sure we’re tapping into,” she says.
Carolyn Vallejo is Middle Market Growth’s digital editor.
Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.
