Issue #17 September 2022

This month, we explore private equity firms targeting HVAC companies. The big takeaway from the pandemic was that HVAC and home services in general, were a sure thing. PE loves a sure thing, especiall in this rocky economy. Learn more!

Table of Contents

The newsletter from KGG designed specifically for your business. We’ll highlight industry news, market trends, and bring you every resource we have.

HVAC companies, listen up!  This one’s going to be short and important.

Unless you’ve been:

  • Living under a rock
  • Too busy to notice

…then you’ve probably heard about private equity (PE) firms targeting and buying up HVAC and other home service-based companies.

If you haven’t, then you’re welcome. This is happening across the nation, and probably coming to a neighborhood near you.

Maybe you don’t want to be left behind – or maybe you do. Either way, it’s important to gain an understanding of:

  • why this is happening
  • what these firms are looking for in a company
  • how PE makes you think differently

Why PE wants HVAC in their portfolios

It’s simple really…

In a world of uncertainty, HVAC provides PE firms with the safest bet.

Why? Well, here are 3 main things:

  1. Our industry is essential. We were open when most businesses closed during the pandemic. Our business doesn’t get affected by most economic cycles.
  2. The service component of our business is very attractive. When HVAC equipment break – they need to be fixed. Comfort and health are important to customers.  
  3. Recurring revenue from add-ons, replacements, repairs, and service agreements – make it a (99%) sure thing.

If you want more context, we actually just released our first editorial that really digs into this topic. You can find it here 

What makes your business so attractive to PE?

We wanted to know exactly what an HVAC private equity firms look for in an HVAC company. Specifically the metrics. We didn’t scour the internet to search for answers – you could find that info yourself.

Instead, we went to straight the source. We spoke with an M&A professional in a private equity backed HVAC company. Here are the specific success metrics they look for:

  • Strong recurring revenue – think profitable service agreements plans, being the first person they call for anything IAQ, HVAC, allergy, etc. 
  • EBITDA margins 10% or above – in case you don’t know, EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It’s a measure of a company’s profitability that excludes these non-operating expenses.
  • Strong leadership team – this ensures that the company is well-run and has a clear vision for the future.
  • Stellar reputation – it’s easy to invest in marketing and advertising with companies that have strong connections with their local customers. 

Want to know more than just the cliff notes version? We’ve expanded on all of this here ➜

PE makes you think about your legacy

It can be easy to forget that you need an exit strategy, though… we prefer to call it your LEGACY strategy.  

Being approached by PE forces you to think about exactly that – the future of your business. Specifically:

  • What will employees do when you retire?
  • What will customers do?
  • What if the current heir apparent doesn’t want to run the company?

If you don’t have the answers to these questions, it’s okay. The beauty of this is it can be whatever you want it to be. There is no one-size-fits-all, silver bullet solution. 

PE deals are 100% flexible and can be whatever you want them to be. You can:

  1. Stay in charge
  2. Be on the board
  3. Retire
  4. Get paid in perpetuity
  5. All of the above
  6. Something else cool that we haven’t even thought of

Related Links to Resources, Content, Videos, and More

  • This month, we are coming out with several articles that break down what is happening in our industry and how to prepare for private equity, consolidation, and more. Check back often.
  • Is your HVAC business recession-proof? Read this to find out.  
  • Did you know HVAC systems affect the environment? Learn exactly how! 
  • Are you subscribed to our podcast yet? We’re on AppleSpotify, and AnchorFM
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