As the owner of an HVAC company, right now anything other than meeting customer demand might fall to the bottom of your list. Between labor shortages, supply chain delays, higher interest rates, and inflation, just finding and keeping talented staff and getting the work done may be all you can handle.
But what about the future? Is this how you want to spend every year? Scrambling to fill vacancies, rescheduling jobs, competing with the more than 100,000 other HVAC companies — all while operating as a small business owner who wears multiple hats, seven days a week?
Now is a great time to think about an option you might not have considered: success through a merger or acquisition (M&A) The time is ripe for a business model that provides options for both you AND your business.
Consider the landscape:
- According to Mordor Intelligence, the market value of the HVAC industry is expected to reach $82.5 billion by 2026 with a CAGR of 6.1%. Other sources are slightly lower but still above 5%. The growth trend for the 118,000 HVAC businesses in the U.S. is upward.
- Another trend on the rise: employment costs. Jobber says the median cost of labor grew by 13% year over year in Q1 2022 compared to Q1 2021 — the highest since the start of the pandemic. And labor shortages aren’t predicted to ease any time soon.
- Back to positive trends: M&A activity, especially driven by private equity (PE) firms, is back to pre-pandemic levels and growing. And PE now accounts for half of M&A, which is good for small business owners who might not be ready for a merger with a similar-sized business.
What do all those trends add up to for you, as an HVAC business owner? We believe they add up to keeping your options open, including one you may not have considered — especially if you’re not only the CEO, but also the founder — a merger or being acquired.
For many CEOs, merging with another firm isn’t high on their list. You want to maintain autonomy; that’s one reason you’re in business for yourself. You also don’t want a boss, necessarily. But M&A doesn’t have to mean giving up control.
Three Ways to Use M&A for Growth and Flexibility
Here are three different ways M&A can benefit your business, and you.
Create generational wealth
This is the kind of M&A you might be most familiar with. You look for a buyer to acquire your company. The industry is ripe for consolidation, and if you’re ready to retire and create generational wealth for your family, then being acquired by another HVAC company could be a perfect option for you.
Higher interest rates act in your favor because they compress margins (equipment, supply, labor costs), which lowers your EBITDA (profits) and therefore your valuation. You become less expensive to buy! If you’re not as familiar with EBITDA here are some points about EBITDA and what matters for M&A.
Access to additional resources
Like many others, you may be worn out with supply chain challenges. If you’ve been struggling to get equipment and continuing to push back installation dates, looking to M&A is an option.
As part of a bigger company, you’ll have more resources for clients and better bargaining power with suppliers. Also, if there are certain functions you just don’t enjoy — maybe it’s marketing or HR — as part of a bigger organization you can hand those over. You can accomplish this through either a merger of equals or an acquisition where you stay on in a leadership role.
Stay involved for now while paving the way for more cash later
You may think “I’m not ready to retire” and assume that means you have to wait for the financial rewards of M&A. That’s not always true. If you sell to a private equity (PE) firm that consolidates multiple businesses into one entity, to then sell later, you can get a “second bite of the apple.” You’ll earn for the initial sale of your business, and then again for the later sale.
This way of doing M&A (selling to a PE firm versus another HVAC company) is a great option if you’re thinking of retiring in the next 5-10 years. It gives you financial flexibility now, a leadership role in the business you love, and the potential to make even more money later
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