Private equity’s growing interest in service-based businesses reflects a broader recognition that enduring value is created through disciplined execution and strong fundamentals. These businesses tend to be essential, resilient, and structurally under-optimized. When paired with operational improvement and consolidation, they can deliver durable returns over the long term.
They remain attractive to investors because they address needs that do not disappear during economic downturns. Heating, cooling, cleaning, and maintenance are required regardless of market conditions. “If someone’s AC goes down in the summer, they’re getting it fixed,” says Garrett Caplin, a private equity investor. “It doesn’t matter if it’s a recession or not.”
This resilience is reinforced by the limits of automation. While technology can streamline back-office functions, the core service still depends on physical presence. “You need a person to go to the house to fix somebody’s HVAC,” he says. “AI can’t do that.” For investors concerned about disruption, these characteristics offer a level of protection that many digital-first models cannot.
Rising labor costs do add complexity, but they have not dampened demand. Instead, they place greater emphasis on operational discipline and pricing power. Businesses delivering essential services retain the ability to pass on costs without eroding demand, provided quality and reliability are maintained.
Unlocking Value Inside Under-Optimized Operations
The first lever Caplin focuses on is internal improvement. Many service businesses are built by owners who prioritize stability over growth. That conservatism often leaves revenue opportunities untapped. Take the example of a laundromat. Card payments, ATMs with transaction fees, and modest retail add-ons can all lift margins without changing the core service. “If it’s coin operated only, you’re hurting yourself,” he says.
These adjustments are not transformational on their own, but together they compound. Additional revenue streams increase average spend while improving customer convenience. Just as importantly, they professionalize the operation, making it easier to scale.
Marketing is another area where private equity can quickly add value. “Odds are the guy was not doing much marketing, or any at all,” Caplin says. Structured outreach, local advertising, and commercial sales efforts can materially expand demand. Targeting hotels or other commercial clients, for example, introduces recurring volume that individual operators rarely pursue.
Scaling Through Consolidation and Brand Building
Operational improvement is only one side of the equation. The second is consolidation, with value accelerating when multiple similar businesses are brought under a single platform. Individually, small service companies may trade at modest multiples. “You might be paying three or four times the profit,” he says.
By acquiring several comparable businesses and standardizing operations, investors can create a recognizable brand with meaningful scale. That scale changes the exit profile. “Now we have a larger business,” Caplin says. “You can sell that at eight or nine times the profit to a larger institution.” The uplift is not driven by cost cutting alone, but by the predictability and reach that a portfolio commands.
Systems, pricing, and customer experience must align across locations. When executed well, consolidation transforms fragmented local operators into an asset that appeals to institutional buyers.
Speed, Discipline, and the Role of AI
Caplin’s perspective challenges the notion that private equity success depends on complexity. In service-based businesses, long-term value is built through fundamentals: improving operations, expanding revenue, consolidating intelligently, and exiting with scale. The appeal of the sector lies in its durability and its resistance to technological displacement.
Technology is reshaping how quickly these strategies can be deployed. Caplin already uses AI in due diligence and financial modeling to identify weaknesses and validate assumptions. “It’s just going to make things faster,” he says.
As tools become more sophisticated, analysis that once took an hour can be completed in minutes. That efficiency allows investors to evaluate more opportunities and move decisively. “Time is money,” Caplin notes. Faster insight leads directly to faster portfolio growth.
As investors search for assets that can weather uncertainty, service businesses offer a rare combination of stability and upside. Private equity’s role is not to reinvent them, but to reveal what disciplined execution can achieve.
Follow Garrett Caplin on LinkedIn for more insights.
