ACHRNEWS

New contractor roll-up: start small, think big

July 12, 2000
NASHVILLE — Although the national consolidation of hvac contractors has slowed down from its feverish three-year pace, the concept of contractor alliances hasn’t lost its potency.

For many independent contractors, the temptation to buy into the concept is still there. They look to tap into economies of scale, group buying discounts, access to best practices, techniques to sharpen problem solving, and a greater competitive edge.

More than 300 contractors have made the jump.

At the same time, hundreds of other independent contractors have sold their businesses to gas and electric utilities or joined buying groups. At the turn of the century, contractor alliances are the name of the game.

One new entry in building up a multicontractor business is Indoor Comfort Group USA, Inc., which has acquired five hvac contractors and has feelers out for other contractors representing $125 million in sales — a level that ceo Howard Lipman plans to reach within a year.

The acquired contractors in mid-Tennessee are Cumberland Comfort Air, Kimbro Electric, Clouse Air Conditioning, and Eagle Air; and in Maryland, P.E. Poole. They specialize in the commercial and residential-light commercial service and replacement sector.

The national roll-up of contractors has created a new climate in which independent contractors are thinking about partnering with others — consolidators, utilities, and even manufacturers, says Lipman, pointing to Lennox’s purchase of many of its own dealers.

Lipman knows whereof he speaks. He is a veteran in starting businesses and taking them to Wall Street. And he knows the culture of the investment community.

Invented Rally's

Lipman invented Rally’s restaurants, a national drive-through fast-food chain of 172 outlets in 28 states and a market cap of $150 million after he took it public in 1989. Later the stock split twice, and ranked third on Forbes small market cap listing.

He also co-founded the consolidated National Medical Waste, which he took public in 1991 and later merged it with a larger company.

The two earlier ventures convinced him that roll-up public consolidations work only if the company has the luxury of several years of private operation to work out the kinks.

His new company portrays itself as the “contractor’s consolidator,” to put some distance between itself and the publicly traded consolidators, says Lipman.

Contractors who buy into the Indoor Comfort USA, Inc., concept will continue to do business with their original company name, and early entries will “have more of a voice in policy, procedure, and company development,” according to its brochure.

This is in keeping with Lipman’s philosophy of exploiting the expertise that made the incoming contractors successful in the first place — a point not to be underrated.

The purchase mode is a combination of cash, notes, and founders’ stock in the corporation — a somewhat different method than that used by the publicly traded consolidators.

Bankrolling the purchases is Trivest, a private investment firm in Miami, which has funded the purchase of companies like Jet Industries, Hatfield, Pa., a manufacturer of injection-molded plastic, disposable cutlery; WinsLoew Furniture, Birmingham, a furniture manufacturer; and Avda-Lite, Largo, Fla., manufacturer of lighting products.

Lipman has watched the entry of the four consolidated contractors on the New York Stock Exchange, noting that success for publicly traded companies depends on the relentless pressure of meeting quarterly earnings projections, rather than long-term growth.

The investment community has no patience beyond a three-month quarterly range. This is counter to the tempo of the contracting market, he says.

“Some big contractors have a cycle that’s longer than 90 days,” he says. “And smaller contractors don’t have the financial reporting to keep up with a 90-day earnings window,” he says.

Why Contractors?

Why did Lipman choose hvac contracting? He points to a colleague who was intimately involved with the four consolidated contractors, who said the “integrity of the numbers” offered by the sellers was the highest he had ever seen in the roll-up process.

“And my own experience confirmed that,” he adds. In the still-early day of his involvement in this industry, he analyzed the financial statements of more than 300 would-be sellers, only one of which was questionable.

The entrepreneur has surrounded himself with some industry veterans.

Charles Diltz, chief operating officer, had 15 years of duty with York International Corp., where he successively ran the marketing for its Applied Systems Division, then managed its independent distributors, and most recently its company-owned distributors.

Chief financial officer John A. Shemancik has done consulting work for Carrier, General Electric, and Westinghouse.

Marketing vice president John LaRosa has experience as an hvac contractor in Lexington, Ky., as well as tenure with York International and most recently as sales manager for Andrews Carrier Distribution, Nashville.

Senior vice president of business development Joseph M. Klenotich, who handles acquisitions, has experience as a consultant to hvac manufacturers, distributors, and contractors.

Further information is available from the company at Loews Vanderbilt Plaza, 2100 West End Ave., Suite 750, Nashville, Tenn. 37203; 615-327-0891; 615-327-4909 (fax).

Sidebar: 20-ton natural gas heat pump installed

PHOENIX — Goettl Air Conditioning, Inc., has installed its first 20-ton, natural gas engine-driven heat pump on the Power Systems division headquarters of Cummins Southwest, Inc.

The split system consists of a condenser, air handler, and power pack (engine and compressor with controls). Available in 15- and 20-ton sizes, the system may be ground or roof mounted, heat pump or straight cool. The capacity of the system adjusts with engine rpm while operating for energy savings, the company said.

For more information, contact Goettl at 602-470-4245.