It’s no secret that HVAC and plumbing companies are attractive targets for Private Equity mergers and acquisitions. The trades, in general, and HVAC in particular, are very appealing because of their recurring-revenue model. We’re seeing a lot of interest in companies in all areas, so if you haven’t received a call from a Private Equity firm yet, you may soon. Here’s how to be ready when the call comes:
1. Get an independent valuation for your company. I’m always amazed by the number of owners who have no idea what their business is worth. It’s the single most important step every owner should take: getting an objective valuation from an experienced broker. Don’t let the first interested buyer, no matter how deep their pockets, be the one to tell you what your company is worth. You should get an opinion of value from a neutral third party every few years, at least. If something should change, like a partnership falling apart, getting a divorce, or losing your ability to run the business, you (or your family) won’t be making decisions in a vacuum under duress.
2. Build your business based on service, repair, and replacement. Buyers are looking for recurring, predictable revenue. They look for companies with a loyal customer base that trusts them to keep their systems in good repair, fix them when something fails, and give them honest advice when it’s time to replace them.
Maintenance agreements create predictable revenue year-round, so it’s important to make them a cornerstone of your company. They also keep your technicians busy during the off-season. When you’re in your customers’ homes twice a year to make sure things are running well, you can spot repair issues before the system stops working. And you’ll be the company they trust to sell them a new system when the time comes.
3. Get your books in order. Most HVAC owners are better at fixing systems than keeping records; that’s understandable. But buyers need to be able to read and trust your financial records. Many owners run personal expenses through the company, which lowers their tax liability, but also lowers their profitability on paper. Take the personal charges off your books. Invest in dedicated accounting and customer relationship management software. Focus on profitability rather than sales. Not only will it pay off when you sell your company, but you’ll also spend a lot less time each month keeping the books.
4. Stay away from new construction. New construction is almost always a race to the bottom. Developers and construction companies don’t want to invest in the best, highest-quality equipment for new homes. The new homeowners won’t have a relationship with your company; when they need help, they’ll shop around for the best deals on new systems, maintenance, and repairs. Smart buyers won’t seriously consider a business that relies heavily on new construction, no matter how profitable it is right now. They understand that a company’s real value is in its service, repair, and replacement business, and that’s what they’ll base their offer on.
Taking these steps will help you build a business that will attract the best offer, whether it’s from a PE firm or someone else.
