Rainier Partners, a private equity firm investing in lower-middle-market services businesses, recently announced the acquisition of Carpetbaggers Inc. to the firm’s flooring platform, SCI Flooring.

Founded in 1980, SCI is a full-service provider of soft and hard surface floor covering solutions to multifamily, commercial, and single-family property managers and builders. The company operates as SCI Floor Covering in Detroit, Michigan; MC Flooring in Kansas City, Missouri; Eastpointe Interiors in Grand Rapids, Michigan; United Carpet in Hazelwood, Missouri, and Elk Grove Village, Illinois; and Carpetbaggers in Indianapolis, Indiana. SCI is a member of American Home Surfaces Group and Commercial USA.

Floor Trends & Installation checked in with SCI President and CEO Dave Elberson for insights on the company's acquisition strategy and what's next for commercial, multifamily and builder markets.

FLOOR Trends & Installation: Tell us about your recent acquisition of Carpetbaggers.

SCI President and CEO Dave Elberson: They’re in Indianapolis, a company that does multifamily work, both turn work and new construction. They were our most recent edition. Prior to that, we had acquired United Carpet which did mostly multifamily work in St. Louis and Chicago, and they were the first acquisition that we did after we partnered with Rainier. We’ve been moving forward with adding acquisitions into the mix, and for lack of a better term, dotting the map in the Midwest with new locations. I’m excited about it because it certainly brings strength with scale and I think there are a lot of really good possibilities there.

FLOOR Trends & Installation: What was intriguing to you about this acquisition?

Elberson:  They are a longstanding company in Indianapolis, 40 to 50 years old. They've had a great name in the market. We've tried to acquire companies that are well-positioned in the market that have a good name. It's harder to do any kind of resuscitation project on a company. That was probably the biggest thing: they were a good company in Indianapolis for a long time, very well-known and, frankly, a really good group of people; just good Midwesterners who work hard and just good to be around. It’s a great culture fit.

Floor Trends & Installation: Why do we continue to see acquisitions in flooring?

Elberson: Across the board in floor covering, whether it's at manufacturing and distribution or at retail/wholesale like us, we're seeing consolidation and those opportunities continue to come. We're still actively searching because there is strength in scale and strength with consolidation of labor. We continue to have opportunities to buy, and I don't see that as changing anytime soon. There are a lot of owners who have been in it for a while and they're a little older looking for an exit plan, so it's just a good time to acquire and consolidate.

Floor Trends & Installation: What is your outlook for the various markets?

Elberson: The nice thing about the way we set up our portfolio is we have those different verticals: multifamily, single-family and commercial. It gives us a little insulation against downturns in any one certain vertical of flooring. 

Currently, across the nation and in the Midwest, we're seeing the multifamily business is just a little bit soft. Most manufacturers are off anywhere for the year, anywhere from 7% to 12%. And then depending on the location you're in, you can be off even a little more—the folks in the south and in that deep south and in the southeast, they're off even a little more than that seven to 10%. So, it's been a little under what we wanted it to be on a multifamily side, but then flip over to the single-family.

Our single-family business is a lot stronger than we had anticipated. My feeling going into the year was that single family with the interest rates might be a little soft, and that's been really solid. 

Our commercial business so far for the year has been really solid. Commercial is about the only market I see that's ever affected by a presidential election. And we see it slow down around presidential elections because a lot of the folks, if you're building a $40 to $100 million building, you might wait a couple months to get started just to see how that plays out, if you think it's going to be beneficial from an interest rate standpoint, from a regulation standpoint. You might push that project a little bit. We expected that it's been a good year so far commercially, but I expect softening toward the end of the year.

Floor Trends & Installation: Why are you more optimistic about the builder business?

Elberson: That's a really good question. I think in ways people got comfortable with the fact that although there's still a lack of housing nationwide, but I think people got comfortable with the fact that, hey, the interest rate isn't that 3% that we were getting, but if I'm getting it at seven, and builders are doing a pretty good job of buying down rates also. Between builders buying down rates and the fact that it was up higher and it's back down to seven, people stepped in and continued to buy. I think they also buy with the thought that, "Hey, I may be paying a little more now, but in a couple three years I'll refinance and get down to a better rate after interest rates come down." And the builders that we're working with are building a product that seem to be very desirable, and that's also helpful.  

Floor Trends & Installation: What do you look for in an acquisition?

Elberson: With the way we go to market, with three different divisions, we've seen roll-ups in the South and in the West in the Southeast, and they're all chasing one vertical and most of it multifamily and or single-family. In the Midwest, where we've got a little more of a mature population centers, being in those three verticals allows you to look at the market a little different. 

Let's say Detroit is a $75 million multifamily market, a $40 million single-family market and $100 million dollar commercial market. We have access then at that point to $215 million of potential business, whereas if you're just in one of those verticals, it's a little shorter. So when you're in that mature market, I think being in the three verticals fits the best.

We don't really care what type of company we're going after in terms of acquisition, whether they do commercial work, multifamily work, single-family work—there's still a potential opportunity for us because we feel like we can add the other divisions. We've done that in Kansas City, we've done that in Grand Rapids, and it's just a matter now of getting it started and doing it in our newest acquisitions.

Our base is the Midwest from Pittsburgh up through Minnesota, maybe over to Iowa, if we found the right thing, north and South Dakota, down Kentucky and possibly Tennessee. That center of the country is what we focused on. If a great acquisition came up somewhere else, would probably do it, but it's kind of that core Midwest and mostly in MSAs [metropolitan statistical areas] of over a million people.  

Floor Trends & Installation: How are you navigating the installation side of the market?

Elberson: When you look at labor, our model's a little different. We have the ability for people in labor—and all of our guys are 1099 subcontractors—to give them a way to improve themselves. Multifamily is kind of the starting point for labor. That's where guys are learning the business, etcetera. But if they get very good at their trade, continue to learn, maybe take some classes, they bump up into single-family. And in single-family it's a little more sophisticated product, maybe a variance of products you're putting down. It's not just carpet and vinyl plank. Maybe you're putting in wood, some upgraded carpet. So, you can move up the single-family where you make more money, and then if you get really sophisticated, you end up moving into the commercial realm, and that's where you make the most money and you have more sophisticated products that you're installing. 

We have a career path for installers, and I think that's attractive for installers. We've been okay right now on labor. If we grew by 20%, 30%, I might tell you it's a challenge, but I like to think when you've got labor that's portable, you're within three hours of the next major city, it really makes that portable labor efficient to make sure your customer gets serviced. That's something else that we are really looking at: How do we fill these gaps to encapsulate that labor, make sure we have enough in any market, give them a way to improve? That makes them stick with us.