Like the Industry, Indy Market Still Playing Out
INDIANAPOLIS, IN — It is the calm after the storm. When hvacr consolidators stormed the Indianapolis market five years ago, there was uneasiness and uncertainty among local independents. Would the Wall Street “bullies” steal customers? Steal employees? Alter the level of service?
A lot of those questions have been answered over the past three years since The News last visited this thriving Midwestern community. The atmosphere of uncertainty and distrust seems to have subsided, and contractors are focusing their attention on customer service — the staple of the hvacr trade.
But there have been some significant changes to the consolidators, who prefer to be called “operating companies” now. It seems that the acquisition stage, so strongly linked to the word “consolidation,” has faded away. The local service centers of each Wall Street corporation are now concentrating on building from within, only seeking tuck-in companies if the fit is right.
Some of the names have changed, too. Airtron/GroupMAC is now Airtron/Encompass. Service Experts is now owned by Lennox, though it continues to use the Service Experts nomenclature only. American Residential Services (ARS) was purchased by Service-Master and is now part of Rescue Rooter/ARS. (This branch was profiled in the September 3 issue of The News.) And Comfort Systems USA is now part of the Indy landscape, having opened its service center just after The News visited this Midwest community three years ago.
GOOD THING GOINGWhen one mentions “Indiana-polis residential new construction,” the first company that comes to mind is Airtron/Encompass. It’s almost the same thing as playing the word association game — Airtron is synonymous with residential new construction.
If one were to study the history of other Encompass business units, one would find that the general market coverage includes design-build construction, electrical technologies, mechanical services and cleaning systems, commercial-industrial-institutional customers; and only a small percentage of residential work.
But in a market where residential starts are up 20% and Airtron has a solid reputation as the industry leader in the new construction trade, Encompass has a good thing going — and acknowledges it.
“Our backlog of work is the highest it’s ever been,” said Eric Woerner, Airtron Indianapolis vice president. “With interest rates going down under 8%, the market keeps going crazy.”
Seventy percent of Airtron’s revenue comes from the residential new construction market. And that’s enough to keep the company’s 135 employees very busy.
“This year is going to be a barn-burner,” said Woerner. “Builders are helping ease the backlog by trying their ‘even flow’ production. Instead of starting up 10 homes at once, they are doing one or two at a time.”
Other than a bigger backlog, nothing much has changed in the past three years for Airtron. Woerner still runs the Indy service center. The company still reports to its corporate headquarters in Dayton, OH, which in turn reports to Encompass.
There are now 17 Airtron locations across the country and the association with Encompass has helped them all, believes Woerner.
“Encompass has given us a lot of national accounts and brought in more business under the Airtron umbrella,” said Woerner.
The current outlook is rosy for Airtron, with a new focus on the add-on replacement market that Woerner said is a growing part of the business. But he isn’t taking anything for granted.
“We did very well last year and should end this year with a strong finish,” he said. “But we aren’t talking about next year because things are going so well right now.”
In regard to the one-time “consolidation craze,” Woerner acknow-ledged some notable changes that happened after the big boys hit Indianapolis.
“A lot of good contractors just disappeared,” he said.
JUST DOWN THE STREETJust down the street is Service Experts. Company vehicles pass each other on the two-lane road but their destinations are quite different. Airtron focuses heavily on new construction, while Service Experts puts its eggs in the residential service and replacement basket.
Its recent acquisition of Broad Ripple Heating & Cooling, a local hvacr contractor, proves that Service Experts is intent on establishing solid footing in this market. Yet acquisitions are not the main focus of the company.
“The big focus is on strengthening internally,” said Gary Line, Service Experts district manager. “We are working on best practices and doing the things that make the most sense.”
The big change in the last three years has been the acquisition of Service Experts by Lennox Industries. The Lennox moniker is noticeably absent from the Service Experts name, but there is a good reason for that, explains Line.
“Lennox is one of our two preferred vendors. The other is Trane,” said Line.
Line, who joined Service Experts this past March, said there are other Lennox dealers in the Indy market and that the acquisition has had “no impact” on these existing dealers. He also believes that the consolidators in general have had a significant impact.
“I think the bar has been raised,” he said. “Our group has gotten better through better competition, better services, better products, and better warranties.”
But he added that some changes are really no changes at all.
“It is the same people in the same market doing the same things,” he explained.
While Airtron’s Woerner believes there has been an increase in the Indy new construction market, Line isn’t as optimistic.
“Residential construction has dropped off in the last year but we still had a good year,” he said. “It has been a little flatter this year, but maybe that’s because there haven’t been any big booms.”
Line sees a good future for the 100-plus employees at the Indianapolis service centers.
“We have seen a steady growth in the past few years,” he said. “And we set high goals for ourselves.”
Those high goals may have initially caused problems for Service Experts and other consolidators in Indianapolis. But this is a reflection of the overall business climate across the United States.
“Growth expectations were so high across the board for companies like General Electric,” said Line. “Even the good operating companies took big hits.”
GLAD THEY JOINEDDuring The News’ visit to Indy three years ago, one local contractor hadn’t quite dotted all of the i’s and crossed all of the t’s on a deal with Wall Street consolidator Comfort Systems USA (CSA).
Twenty-one years ago, Accu-Temp opened up shop in Indianapolis as a strictly commercial service company. Things changed a bit after co-owner Bob Melvin and founder Bob Pettigrew got into building controls a few years after that. When they sold the business to CSA three years ago, the controls business took off.
“Sixty-five percent of our annual revenue comes from building controls,” said Melvin.
That turned out to be a good thing for another reason: The business is not dependent on the economy.
“Economic upturns and downturns don’t affect the controls business,” he said. “But we also decided to start getting into commercial construction, mainly on a job-by-job, negotiated basis. Right now the business environment is good as we are looking at expanding our opportunities.”
And Accu-Temp is looking beyond Indianapolis, too.
“The focus of our decision to go to consolidation was to be able to go with a national company that had a lot of resources,” said Melvin. “Being with Comfort Systems allows us to bring national entities into our business.”
Melvin said the decision to join CSA has had good ramifications for his staff of 55.
“We owe team members the ability to survive by giving them more career opportunities,” he said. “CSA wants to empower people to step in and solve problems for customers.”
He said that Accu-Temp has the talent pool to handle larger workloads; now it’s just a matter of making Comfort Systems USA more of a household name.
“We need to strengthen our name brand,” Melvin emphasized.
But Melvin is happy with the business climate in Indianapolis and likes being there. He said that being successful is not really that hard to explain.
“For a business to survive, it has to start and end with quality,” he said.
STILL PLAYING OUTWhat started with several personal relationships and strong contractor groups eventually led to a proliferation of consolidation in central Indiana. It is almost a phenomenon that such a flurry of contractor roll-ups happened in Indianapolis, more so than any other comparable community in the United States.
But it did happen and the story continues to play out. The ownerships have changed, some of the faces have changed, and the market has settled down. What has happened in Indianapolis reflects the current state of affairs in the hvacr trade.
The dust has settled and the players have trenched in for the ultimate goal: building a strong customer base and flourishing despite weather and economic unpredictability.
Sidebar: Consolidation No Big Deal, Says ContractorINDIANAPOLIS, IN — Three years ago, Frank Mutz of Boll’s Heating & Cooling/Unique Indoor Comfort had some pretty strong feelings about contractor consolidation:
“There will be a lot of heartache and a lot of blood spilled. I think some of the people who are consolidating are doing it for the wrong reasons. They are in it because of the stock market. A lot of the top guys are smart, but some of them will take the money and run.”
Today Mutz is a little less candid, but probably because he hasn’t felt the impact of consolidation like he thought he would.
“We really haven’t noticed too much,” he said. “The consolidators haven’t done too well and they really haven’t impacted our business. We’ve actually hired some workers from them [consolidators].”
The residential service contractor employs about 15 to 20 people and has kept the same management team for the past few years. Mutz said that his company is more concerned with what utilities are doing instead of what consolidators are doing in the market. Still, he manages to keep an eye on the bigger Wall Street-backed companies.
“If anything, consolidation has helped our business,” he said. “Our niche is personalized service and I don’t think consolidators can offer that.
“Somebody will probably figure out how to consolidate a business someday.”
Publication date: 09/10/2001