The Top 4 HVAC Private Equity Metrics Every Contractor Should Know

Whether you're an experienced HVAC contractor or just starting out, it's important to know what success metrics private equity investors are looking for when targeting HVAC companies. By understanding these key measurements, you'll be in a better position to grow your business and attract potential investors. So, what exactly do these investors look at? Keep reading to find out!
Last Updated on August 29, 2022

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When it comes to acquiring HVAC companies, private equity firms have their sights set on key success metrics. Whether it’s revenue growth potential or strategic fit, these firms are looking for businesses that can scale and provide a strong return on investment. If your company is considering selling to a private equity firm, it’s important to know what they’re looking for and how you can make your business more attractive. This article will explore the key success metrics that PE firms focus on when acquiring HVAC businesses.

HVAC Companies Need Strong Leadership

Any successful business has a strong leadership team at its core. It’s not possible to attract PE without it. This is especially true for companies in the HVAC industry, where rapid changes in technology and regulations can make it difficult to keep up with the competition. Private equity firms are well aware of this fact, and one of their key criteria for investing in an HVAC company is a management team that has the experience and expertise to navigate these challenges. In addition to a deep understanding of the industry, successful HVAC leaders also need to be able to think creatively and make quick decisions in order to take advantage of opportunities as they arise. With the right team in place, an HVAC company can weather any storm and emerge as a strong contender in the marketplace.

HVAC Private Equity Want EBITDA Above 10%

What does EBITDA stand for? Earnings before interest, taxes, depreciation, and amortization. It’s a measure of a company’s profitability that excludes these non-operating expenses. Many investors use EBITDA to compare companies in the same industry because it provides a more accurate picture of a company’s operating performance.

For firms to be able to target HVAC companies, they need to have an EBITDA above 10%. This is because private equity firms typically want to invest in companies that are growing quickly and are profitable. In addition, private equity firms often look for companies that have a strong management team in place. This is because a good management team is essential for any company that wants to scale quickly. Private equity firms typically invest in HVAC companies with these metrics because they believe will be successful in the long term. As a result, they tend to be very selective about the companies that they invest in.

Private Equity Loves HVAC’s Recurring Revenue

You know that the key to a healthy business is recurring revenue. When your customers need repairs or replacement equipment, are they likely to call you first? Here are some other ways to generate recurring revenue:

  • Maintenance contracts. For a monthly or annual fee, you can provide regular tune-ups and inspections to keep your customers’ systems running smoothly.
  • Offer discounts on repairs or replacement equipment for customers who sign up for a maintenance contract.
  • Sell air filters and other consumable items that need to be replaced on a regular basis.

By stocking these items in your truck and offering them to your customers at a competitive price, you can create another stream of recurring revenue. By thinking outside the box, you can ensure that your HVAC business has a solid foundation of recurring revenue.

Profitable service agreements. There’s a big difference between selling and profiting from service agreements. It’s all about the pricing! John Ellis teaches you how to do it right ➜

Earn a Solid Reputation

Private equity firms often seek to invest in companies that have a proven track record of success. By targeting HVAC firms with a great reputation, they can be confident that they are making a wise investment. As the interest from private equity firms continues to grow, HVAC companies with a strong reputation will be well-positioned to take advantage of this trend.

To improve your reputation in your community, do these simple and effective things:

  • monitor your online reputation – that means commenting on every review, good and bad
  • provide your customers with quality work – focus on comfort, safety, health, and energy-efficiency
  • get involved in your community – give back as often as you can, however you can

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