Private equity firms are all the rage in the HVAC industry news lately. And for good reason – their purchase of companies can have a big impact on the economy. But what is private equity and why are they so interested in buying HVAC companies? In this blog post, we’ll break it all down for you. Specifically:
- We’ll start by explaining what private equity is
- Why private equity is interested in the HVAC companies specifically
- The top 4 HVAC company benefits from teaming up with private equity firms
By the end of this post, you’ll have a clear understanding of what private equity is and why it matters to business owners like you!
What is an HVAC Private Equity Firm and How does it Work?
A private equity firm is a type of investment firm that focuses on investing in and acquiring privately held companies. They typically use a variety of financial instruments, such as debt and equity, to finance their investments. When private equity invests in HVAC companies, it is often structured as a partnership. The general partners manage the day-to-day operations of the firm and the limited partners provide the capital for investments.
The goal of private equity firms is to generate a high return on investment through a variety of methods, such as:
- restructuring the company (common)
- selling off non-core assets (uncommon in HVAC)
- taking the company public (highly unlikely)
While HVAC private equity firms can be highly profitable, they also carry a higher degree of risk than traditional investments. To mitigate risk, PE firms will only work with HVAC businesses that have specific success metrics already in place. Here’s a breakdown of what they look for ➔
Business Benefits of Working With Private Equity Firms
There are 4 big benefits to working with private equity firms. They include:
- A cash infusion in lieu of loans – An HVAC private equity firm can provide a great advantage to the table by providing no collateral and monthly payments that are not required. The company also has access to funding which it uses for expansion projects like building upgrades, equipment purchases, or advertising campaigns.
- Freedom to grow – The funding gives the company a new lease on life. An investment provides an opportunity for growth that was previously unimaginable.
- Apprenticeships and training – You can start apprenticeship programs to develop your own pool of talent. PE firms have connections to experts in the HVAC field to help you market, sell, and train better.
- Experience and expertise – PE firms have access to a vast pool of business owners-turned-investors with experience in developing and implementing solutions to a variety of business challenges, such as establishing novel business models, overcoming economic headwinds, and forming effective strategic partnerships.
Consolidation is booming in our industry. There are a variety of reasons why this is happening, and we spell it out in our recent editorial that does a SWOT analysis on private equity firms. Find it here ➔