Led by former ceo Fred Ferreira, the small band of 12 original companies started out on a controlled path of acquisitions amongst well-managed commercial/industrial contracting businesses.
Now the torch has been passed to new ceo Bill Murdy, and with it, a phasing out of the consolidation stage and a blossoming of the operational dimension. No, Comfort has not dropped out of the acquisitions market; they are merely following a natural progression toward a unified operating company.
“All companies [Wall Street hvacr consolidators] were designed to become an operating company, not a consolidator,” said Murdy. “We are now internalizing a lot of our business practices as opposed to expanding into new markets.”
ALLOWING FREEDOMComfort currently has 87 “operating entities,” as Murdy calls them, in 127 locations. These commercial/industrial-focused companies are predominantly design-build, mechanical, and hvac service contractors, but also include controls, electrical, plumbing, and fire protection. To date, Comfort has acquired 115 businesses; some are tuck-ins — a terminology Murdy shudders at. Revenues from the 87 units are expected to be $1.5 billion in 2000.
While other consolidators have seen original owners fold up their tents and move on to other ventures, Comfort has been able to keep most of these people on board.
“This is one of the things that is strikingly different about us,” said Murdy. “We have been able to retain a lot of the original owners. We have kept entrepreneurship around.
“It is tricky trying to keep the entrepreneurial fires burning. But we are trying to give companies the freedom to run their own business.”
Murdy knows that integrating so many different businesses under one umbrella is not an easy task, and continues to be an ongoing one.
“To expect companies to merge naturally is naïve,” he said. “One of the benefits of having different entities is that we can bring together each one’s functional capabilities and share it with other companies, such as fire protection and electrical services.
“It takes time to gather information on which is the best path to take, but over time we have been able to understand our strengths and expertise and get our components working together.”
THOSE DARN STOCK PRICESNot only has the road to integration been time-consuming and dotted with potholes, but Comfort has suffered the same fate as other original consolidators: plunging stock prices, which typically can damage morale and motivation. The company’s stock went from a high of 26 3/8 dollars per share to a low of 3 3/8.
Although fellow consolidators shared the plunge, it didn’t seem to soften the blow.
“The stock dive was a demotivating thing,” admitted Murdy. “Unfortunately, the stock price becomes the one measure of a company’s success, which isn’t always true.”
Comfort stock is now trading around $5 a share and Murdy hopes to reinvigorate key employees by reissuing stock options at their current price.
“Stock options should be used as an incentive to perform,” he said.
Murdy puts some of the blame for faltering stock prices on the current shortage in the hvacr labor market, stating “the labor situation is hurting our business.”
“Productivity has suffered and inefficiencies have led to margin declines. It has hurt the entire industry.”
Although Comfort’s top line is growing (revenues up 12% this year), the company has suffered due to an economy that is “too healthy.”
“Frankly, it would be better if things slowed down,” he said. “We have all the work we want to handle right now.
“Our largest operating company will likely increase revenues from $180 million to $240 million this year but there will be little increase in profits.”
INTERNAL STRENGTHMurdy also knows that management is the most common missing ingredient when it comes to turning a good profit. He isn’t naïve enough to think that all of his managers experience the same motivation, especially since they no longer own their companies.
That’s why Comfort is focusing on strengthening itself internally rather than externally.
“Sure there are markets we should be in and would like to be in, but we are not in the acquiring mode,” said Murdy. “We are focusing on our underperforming companies. Many are not performing as well as when they were acquired.”
Murdy continues to look down the road, though.
“We are very interested in energy management, automated controls, indoor air quality, etc.,” he said.
But for now, the focus is transforming the company from an aggregator to an operator — and to becoming more profitable.
“Our emphasis is not necessarily on revenue growth, but profitable growth,” concluded Murdy. “We will make acquisitions from time to time when necessary, but that is not our focus.”
Publication date: 09/11/2000
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