When it comes to the price a company will bring when the owner is ready to sell, one factor determines much of the value: the size of the buyer pool.
Several qualified buyers competing to acquire the business can drive up the price they’re willing to pay and the multiple they’re willing to offer. Here are some of the reasons why buyers are showing a bit more interest in residential companies at the moment:
Although the market is always cyclical, there are more buyers for a residential installation and repair business right now.
Commercial acquisitions have been trending up, but a larger buyer pool usually means owners get a higher price for their companies. The recurring revenue from maintenance agreements is a big draw. In larger markets, residential construction will outpace commercial building growth.
Commercial companies often carry large amounts of Accounts Receivable.
Because corporations often negotiate 30/60/90-day payment terms, commercial companies need more operating capital to fund the business. They’re essentially financing the equipment themselves and waiting to be reimbursed. A residential customer will pay when service is rendered, but an HVAC business owner might not get paid for months after a commercial installation or repair.
Incidentally, this can also make deals more complex and take longer to negotiate. Buyers and sellers have to agree on a fair way to divide working capital, the amount needed to keep the business operating over the next few months. Sellers understandably want to ensure they get paid for the work they have already completed. An experienced business broker can help both parties normalize the required working capital and reach an agreement.
Both equipment and labor costs are higher for a commercial company.
Commercial equipment is always larger and more expensive, so a commercial company will carry significantly more debt until it gets paid than a residential company. Parts, installation methods, and other items may need to meet specific industry standards set by both the company and regulators, so installation plans are more complex and subject to longer approval processes.
Commercial companies need special equipment such as cranes to lift rooftop units and larger vehicles to carry equipment and materials. Upkeep and fuel costs will naturally be higher.
Commercial technicians can be more expensive to recruit, train, and retain. An owner must ensure some techs are on call 24/7/365, with repair parts and a plan. If a commercial cooler filled with perishable food goes down at 2:00 AM, the company must respond; there’s no option to ask the customer to wait until the next business day.
For all these reasons, buyers will be willing to offer more for a residential HVAC business. Although buyer interest in residential businesses has increased, we’ve also seen rising interest in commercial, and those valuations have been increasing as well. So if a company’s revenue comes mostly from commercial customers, there’s reason to be optimistic that 2027 will be a good year for owners entering their window to sell.
If you’re wondering what your company might be worth, you can contact us here for a free and confidential opinion of the value of your company.
