HUNTSVILLE, ON, Canada — Andrew Pigott helps hvacr contractors understand the why’s and what’s involved in the sale of their businesses. Piggot, who works in planning and acquisitions for Calcap Corporate Finance Ltd., Toronto, ON, told HRAI meeting attendees there are several reasons for selling a business, as well as many ways to make the business “saleable.”

Pigott said the most common “chains of events” in the decision to sell a business involve:

  • A retiring shareholder, who wants to “see ownership continuity” while maximizing the value of the business and realizing enough wealth to retire comfortably;

  • An active successor, who wants to maximize the long-term value of the company and who does not want to overpay for the business and “dry up” the money to run the business; and

  • An inactive successor, who is looking for a good return on investment and is confident in the incoming management to effectively run the business.

    • So, what should business owners expect to get for their business when they sell it? Pigott said it all depends on market conditions.

    “Price really depends on what is happening in the market at that time,” he said. “Forget the real world — it is about two people going back and forth, trying to make the best deal.”



    What The Market Will Bear

    He added that valuing a business depends on the market, too. “If we [Calcap and customer] want to sell a business, we want to look at what the stock market is doing in order to get the highest and best price.” Pigott talked about stock price fluctuations involving consolidated companies such as Lennox/Service Experts, Encompass, and Watsco.

    The competitive structure of the hvacr industry, which includes the crush of consolidation, has led to fluctuations in the valuation of any hvacr company, according to Pigott.

    “Once upon a time, there was a tidy competitive structure — but things have changed dramatically,” he said. “I compare the changes to a shoot-out at the O.K. Corral. But at the end of the day, we are all still focusing on the customers.”

    Customer relationships and employer-employee relationships go a long way in determining the real value of a business, according to Pigott. “There really is no magic formula to [the valuation process]. Stability to customers and stability to employees is what buyers are really looking at.”

    Pigott said that the hvacr market will continue to remain very competitive, citing low barriers to entry, utility competition, the fragmented market, and the need for permanent customer relationships. But he said that an hvacr contractor can get a leg up on the competition and a firm footing on realizing true value by remembering these keys to maintaining good records:

  • Financials/customers/service;

  • Quality control standards; and

  • Corporate records.

    • “All of these [properly maintained records] simplify decision making, financing, and ownership transition,” Pigott concluded.

    Publication date: 09/24/2001