ACHRNEWS

Florida contractors beat heat and the competition by consolidating

August 16, 2000
The consolidation bug has taken a bite out of some Tampa Bay-area contractors.

In an effort to beef up their existing customer base and solidify their business foundations, two local contractors have turned to national corporations to give them the financial backing and business expertise to compete in the 21st century.

Sadly, one of the owners in Sarasota who sold to Blue Dot® died suddenly after the acquisition was complete. So while Blue Dot cheered the acquisition, they mourned the loss of the former owner and set out to find someone to fill his shoes.

To the north of Sarasota in Tampa, a husband-and-wife team turned an appliance repair shop into a million-dollar business that drew the attention of a couple of Wall Street consolidators. They chose Service Experts.

N&M A/C & Heating/Blue Dot

Hanging on the wall in Harry Friedman’s office at N&M are two pictures of himself and the legendary baseball manager, Casey Stengel. The pictures were taken when Friedman was a 13 year old working at his father’s appliance store.

Now, a few decades later, Friedman is still in the appliance business, selling and servicing a/c systems.

The road he took to N&M was an unexpected one. Friedman was working in St. Petersburg as the manager of a Service America division when he got the word about former N&M owner Robert Brogan.

“Blue Dot acquired N&M in February, 1998 and typical of their philosophy, they were looking forward to having the business run by a highly successful owner,” said Friedman. “The owner [Brogan] died unexpectedly a month after the purchase.

“He was really the key player in the deal and it left Blue Dot in the lurch. They went through the summer with the existing management team running the business.”

Based on his past working relationship with Service America, which was run by current Blue Dot president Pat Johnson, Friedman was asked to step in as the general manager at N&M.

“It was very comfortable for me to come across and join this family,” he said.

N&M, which was founded in the early 1960s, still keeps its imprint on the business. When original owner Ron Miller sold to Blue Dot, he kept the new construction division and named it Ideal Heating & Air Conditioning. And, he still owns the building N&M occupies.

N&M had received overtures from another consolidator but backed away when it was determined that some employees wouldn’t be guaranteed a job after the consolidation.

The “new” company employs 30 people and works entirely in the residential retrofit, service, and maintenance market. Last year’s sales approached $3.5 million.

Still, “We didn’t do as well in 1998 as 1997,” Friedman said. “That came as no big surprise given the changes that took effect.”

Too-nice weather

Unfortunately, 1999 has been a bit of a struggle with the perfect temperatures in Florida.

“We’re putting a lot of time and effort into every sale,” Friedman said. “This is a very climate-driven industry and we had a very mild winter and spring. A lot of our work is driven by equipment that breaks down in extreme weather and that just hasn’t happened this year.”

Friedman said his goal is to become more innovative in the company’s approach to finding new customers. He knows that his competition, some of which comes from national consolidator Service Experts, will not curtail its efforts.

“We are getting aggressive and growing our customer base [4,000 maintenance agreements] as long-term customers,” he said.

As a means to expand its customer base, N&M is looking to acquire other service companies, much like its competitors. Friedman sees the recent flurry of acquisitions as a harbinger of evolution for the industry.

“I think the union of ServiceMaster and ARS is good,” he said. “Anything that will build up the consolidation business is a good thing. ServiceMaster is a good, solid business.”

Another form of consolidation does have Friedman concerned, however. It is one that may eventually pit his company against its top supplier.

“My concern is with Lennox getting into it. The possibility of being in competition with our mainstay supplier is a concern to us. It’s just another wrinkle to have to deal with.”

Labor woes

A problem that continues to give contractors like Friedman many frown lines is the labor situation.

“The air conditioning trade is not well supported here,” he said. “There was a time when you’d see full classes at technical schools, but now you may see only a dozen students. It [hvac trade] is not growing because young people have not gotten interested in our business.

“For us to get a qualified tech today, we’d have to hire the person away from another company. And you’d do almost anything you can to keep your people.”

He credits Blue Dot with offering the resources to make employment with N&M an attractive package.

Armed with a solid staff and a growing number of maintenance agreements, Friedman is looking for better things at N&M in the near future, including new markets.

“We are looking to get into the light commercial business because of all of the strip malls and physicians’ offices in the area. We are also looking to build our duct-cleaning business.”

Allstate Appliance and Air Conditioning/Service Experts

Mike Pearman used to repair appliances all the time. He wasn’t like the Maytag man, forever etched on consumers’ minds as the “loneliest repairman” in the world.

Pearman enjoyed fixing things until one day he got the bug to take it a step beyond. His wife, Laura, had something to do with it.

“I had been repairing appliances in homes for five years before I met Laura,” he said. “After we married she suggested we work for ourselves and that’s what started it.”

Pearman had been servicing air conditioners prior to opening his own repair shop. One of his stores was almost a block long and featured 25 to 30 refrigerators on display and running.

“Customers would walk in the door, see the condensation, and say, ‘I’ll take it,’” he said.

Once the Pearmans were up and running in the a/c service business, Laura decided she would apply for her license and become a “woman-minority company,” which gives them the opportunity to bid on government jobs.

Thanks to hard work, the business has almost doubled every year since 1984. The company now ranks new residential installations ahead of their repair business. They are also involved in commercial installations, too.

“We found that once we got into the a/c business, we liked it a lot more than the repair side,” said Laura. But it is hard to wander too far from one’s roots, and the Pearmans still spend a lot of time repairing appliances. However, their sights are on bigger fish.

Being able to step into larger projects has been aided by the recent acquisition of Allstate by Service Experts. The Pearmans expect to reap a lot of the benefits associated with the backing of a national consolidator.

“I see consolidation as an opportunity,” Laura commented. “A lot of our fellow contractors have negative comments, but I think the positives far outweigh the negatives. They can hire some of the top training people; it will turn into a real learning experience for us. It will be a new beginning.”

The Pearmans appreciate the fact that Service Experts puts so much emphasis on customer service. Mike feels that the Tampa area is a perfect fit for his company because so many residents and businesses are dependent on good service.

“Tampa is a big service area, a lot of square miles, and lot of income per capita,” Mike said. “We are more of a blue collar area; the population will soon hit the one million mark.”

Utility push

It’s no wonder local utilities seem to want to make a push into the residential service market. Mike has some thoughts on Allstate’s newest competition.

“They’re overstepping their bounds,” he said. “It’s like oil companies that produce the oil and own all of the gas stations. You have no choice but to buy from them.

“It’s the same with utilities: You buy the electric from them and they’ll provide the service. That’s not right.

“We could keep some of these power companies out if mechanical contractors would band together and talk with each other, instead of viewing each other as a threat to their business.”

Laura said, “In our area, a lot of contractors stick each other in the back. People say it [utility competition] isn’t going to happen here, but it is happening. I’ve already talked to contractors from regions outside of Florida whose businesses have been devastated by utilities.

“I was looking at a picture of a lighthouse with the waves crashing around it and it struck me: Our business is like that lighthouse. The hvac trade is getting it from all sides and we have to struggle just to hold on.”

While the trade continues getting it from all sides, it is getting it from within too — fewer good people want to learn the business. The Pearmans know the problem well and are doing what they can to keep their employees.

“We pay for our people to go through training sponsored by the Refrigeration Air Conditioning Contractors Association [RACCA],” Laura said. “They learn a lot of hands-on and theory.

“One of the problems is that as older people retire, they are not being replaced. Today, technicians have to know about a lot of different trades and as a result, are being paid pretty good wages.

“We could use at least four more technicians. I think we’ll be able to attract new people now that we’ve joined with Service Experts.”

Sidebar: Parts distributor keeping up with Florida contractors

BRADENTON, Fla. — Jim Patino speaks proudly of his company’s ability to acquire and convert distributorships. After all, Pameco has been growing by leaps and bounds through acquisitions in the past few years. It has become second nature.

The late 1996 acquisition of 52 Sid Harvey stores in the South was a key example. It was one of several that have doubled the company’s size in three years.

“It was one of the better transitions I had ever seen,” said Patino, Pameco regional general manager for seven locations in Florida. “Within 90 days, they converted the stores to Pameco operations, installed our systems, and trained the staffs. It was awesome.”

The company was able to retain the former Sid Harvey workers, which when considering the current labor market, was quite a coup.

“The unemployment rate is very low, especially here in Bradenton,” Patino said. “To find a specialty person is very hard. I had to bring a branch manager into Bradenton from another location.

“I’m fortunate to have a good manager in Jack Tinline. I know that I’m only as good as the people who work for me.”

Many of Pameco’s employees are trained in-house and recruited through national job listings. If an employee is looking to relocate, he can check the company listings for the locations that are looking for workers.

Pameco also offers training and coursework, Pameco Pro, for employees. A system of awards is built into the training if an employee completes 22 open-book exams within one year.

Patino said a typical store employs four to five people. The Bradenton branch sells 68% hvac-related products. He said this mid-Florida location generated $3.5 million in sales last year. Like most wholesalers, the business is seasonal and dependent on the temperature.

“1998 was pretty hot and our business was up 30% to 40% during the summer months,” Patino said. “Right now we’re running about 10% to 12% above our projections.”

Some of the Bradenton accounts include N&M Heating & Cooling/Blue Dot (featured in this issue) and Service Experts. This is due largely to the fact that Pameco is one of Service Experts’ national accounts.

Patino said that some contractors he knows in the Fort Myers area were glad to see the consolidation movement. “Consolidation relieved a lot of their stress,” he explained.

“Some guys wanted to retire but didn’t know how to. One contractor said it was the best thing that could have happened to him. Consolidation also makes the benefits better for their employees.”

Patino said he doesn’t see room for more distributor acquisitions in Florida, but admitted that he said the same thing before the Sid Harvey acquisitions.

The future of the wholesaler in the Bradenton area is strong. Patino plans to double the size of the Fort Myers location to 32,000 sq ft and plans on physically enlarging the Bradenton store within five years.

He plans to continue his high level of customer service and his availability to his customers on a seven-day, 24-hr basis. If Patino can’t get someone to open a store in an emergency, he’ll go in and do it himself.

He also keeps abreast of the company inventory via his computer, without having to call up a store and ask if an item is in stock. This helps when a customer needs a part right away. Patino can arrange for a company truck to ship the part or have UPS pick it up.

With 20 stores within a 2-hr drive, parts availability is usually not a problem. This makes all of the stores in the region, particularly Bradenton, more accessible to local contractors.