For decades, family-owned HVACR companies have had succession plans established by birthright. When the current leadership retired, the predestined next in line, whether one relative or a few, took up the mantle for a smooth transition. Much has changed. Many millennials and Gen Zers are not looking to become the heir apparent to the family business in an industry known for working long hours and outdoors, regardless of weather conditions, and the need to be on call for emergencies.
There are over 50,000 independently owned HVACR businesses in the U.S., and many don’t have succession plans. So what comes next? Selling successfully with the knowledge that you are in an industry that grows right alongside the population, because everyone needs places to live that have climate control systems. And the opportunities are boundless, because HVACR spans multiple sectors of residential, industrial, and commercial. Service will increase while always being in demand, as maintenance is necessary to maintain efficiency.
For this reason, HVACR contractors interested in selling their business need to take time to reflect on the value of their trusted brand that generations have worked hard to establish. Below are three steps every HVACR business owner should take to position their company for optimal interest by qualified buyers.
1. Secure a CPA conducted audit. Think you’ve got your finances covered? Think again. Your internal spreadsheets and neon-colored pie charts may be pretty, but anything less than a third-party financial audit will be worthless to an acquisition-seeking company. The rule of thumb is to have your professional audit cover a minimum of the last three years. Taking a shortcut on this will put you at a disadvantage and could knock you out of the running altogether because it could suggest you lack seriousness of purpose. An outside audit, properly prepared and reviewed, shows respect for the due diligence process and will build confidence between both parties as the process moves into the next steps.
2. Not Your Father’s Valuation. If your HVACR company has spent decades as a privately owned family business, you may not realize the new factors that have wildly increased your valuation. For example, some companies may believe greater environmental awareness and increasing regulation will lessen their appeal if they have an overstock of aging systems not up to current standards. The exact opposite might be true, especially if a potential acquirer is skilled in retrofitting or has a need for these parts and machinery to supplement their other inventory. Your finance and legal teams will be tallying up your P&L, current and projected sales, building and warehouse leases, patents, and equipment status, but count your virtual assets, too. Those would be your social media followers, database of past and current customers, RFP partners/subcontractors, and companies who have approved you as a vendor. But what could intrigue them the most, if you have them, will be your audience and user numbers as well as your communication and educational collateral from podcasts, webinars, and workforce training curriculum. All of this matters in today’s digital world.
3. Parlez-Vous M&A Deal? If you’re not fluent in “M&A,” then you need to build a team of merger-experienced experts who do speak it to guide you, because this business endeavor is unique. It will require specialists who understand and will know how to prioritize every step, from document preparation and evaluating letters of intent to tax implications, government compliance, quality assurance, federal, state, and international industry regulations, and more. They will also be essential for evaluating offers. While “cash deals” may not need much translating, more complex deals include a focus on external factors like current and future taxes, depreciation, cash flow, EBITA, consumer trend data, along with a full review of weather predictions and the political landscape. A multilayered proposed involving ESOP (Employee Stock Ownership Plan) could also be a smart direction, but you will need experts who can read between the lines to know what to accept to reach your highest potential in this deal.
Your family-owned legacy HVACR company was built on time, money, and service. By following these three steps during the sell process, you will increase the chance of a smooth transition to owners outside your family. Just as importantly, you can feel confident you are receiving the highest consideration possible for a business that you, and generations of your family before you, have dedicated so much of your lives. Good luck!