When it comes time to sell your company, should you care who buys it? Sure, it represents your years of hard work and you may be emotionally invested, but isn’t it really about who will pay the most for your business? Does it matter who buys your HVAC company?
“It’s not that easy,” says Business Modification Group President and business broker, Patrick Lange.
“Who buys your HVAC company is as important as how much they pay for it.”
He goes on to explain that, in his experience, 75% of the buyers of HVAC businesses are from outside the industry. HVAC businesses are perceived to be a safe investment and come with less risk than other businesses. By having consistent measurable outcomes, buyers are attracted to the recurring revenue model PMA’s can provide. It helps that HVAC companies are deemed as essential businesses as defined by federal and state governments during the COVID-19 outbreak. Temperature moderation is a must-have versus nice to have. For this reason, the HVAC industry is recession-resistant and very attractive to buyers.
Buyers aren’t just individuals either. They are private equity firms that buy multiple companies with the strategy of selling them again in 3-5 years. “I am seeing strong interest from PE firms if HVAC revenues are at least 3 million. Sellers of these companies should have multiple competing offers.” Lange adds.
Further adding to the hot market is what’s happening with foreign investments. With the United States renegotiating tariffs with major trade partners China, Japan, and Mexico, it is pushing investment dollars away from manufacturing and into domestic service businesses in the US. That’s a win for the HVAC owner looking for an exit in the next 12-15 months.
The problem with industry outsiders
Selling your business to an industry outsider means the deal could get more complicated. Here’s why:
They need a license.
Most states require an HVAC license to operate under. If the buyer doesn’t have one, they likely need to operate under the sellers for some time. This means the seller isn’t completely out of the business and still needs to oversee jobs. Insurance requires they be an employee of the business. Although it can be lucrative, it may or may not be good news for the seller.
The SBA may deny them a loan
Banks and the SBA aren’t in the risk business. They want to have a high degree of certainty that the buyer can repay a loan and will be successful. Coming into a new industry presents a learning curve that’s much steeper than a seasoned HVAC business operator. Banks are well aware of this and understand failure rate is much higher.
Higher risk of holding a note
Even if the buyer can get financing through an SBA lender, most banks require that the seller hold a portion of the note. This is because they want the seller to have skin in the game to make sure the transition goes smoothly and the information represented is accurate. If the buyer doesn’t have HVAC experience, the note has a higher risk of not being paid back due to business collapse.
The transition may be longer
Between two industry insiders, it’s typical that the seller offers a week or two “transition time” to make sure any questions get answered and the business has a smooth passing of ownership. However, the transition time is likely extended if the owner is an industry outsider. This is particularly true if a PE firm is involved. They tend to structure deals not only on past performance but future revenue targets.
“It’s all something we can work through” Lange reassures. “Yes, the HVAC market to sell a business is hot and owners are making life-changing money, but sometimes it’s not as easy as cashing a big check and never looking back. Owners have to ask themselves if they are willing to sell for a high number, and put up with some minor inconveniences along the way, or sell to an HVAC insider and potentially leave some money on the table.”
It’s good to have options when deciding who buys your HVAC company.
About Patrick Lange:
Patrick Lange is an experienced HVAC specific business broker with Business Modification Group based in Horseshoe Beach, Florida. He has a unique background in financial planning and has even owned an HVAC business himself. This makes him well suited to working with some of the most successful HVAC business owners in the country. Specializing in companies with 1-10 million dollars in revenue, he maintains a network of buyers and sellers in the industry. He has sold more HVAC businesses than any other broker in the United States over the last 12 months and is currently the Vice President of the Business Brokers of Florida (North Florida District.)