There’s a saying among journalists — “If it bleeds, it leads.” For the average layperson, that means sensational stories usually lead off the television newscast or make the front-page headlines. The rest of the news (and any good news) falls to the back of the line.

And so it can be said that the news that stirs the pot in the hvacr industry usually contains phrases like “ozone depleting,” “utility cross-subsidization,” and “consolidation movement.” I know that the mention of these terms causes a slight adrenaline rush for some readers — and it should.

Contractors measure their own success not only by their profit and loss statement but by how well they satisfy their customers. They also have to keep up with technological developments in communications and business software, educate and train their staffs on new rules and regulations, and keep a watchful eye out for changes in the hvacr landscape.

Changes in the hvacr industry are not uncommon, but the news about Wall Street companies buying up independent contractors has a certain glamour to it. Let’s face it, ours is not a flashy or sexy industry. That’s one reason why we have trouble attracting young people to it. When news comes along that is out of the ordinary, it certainly captures our attention.

“Extra! Extra! Read all about it! Consolidation has hit the heating and cooling industry! Contractors prepare for all-out war!”

It sure sounds more attention grabbing than, “Heating and cooling contractors cite poor installations for increased fan motor failures.”

A Look Back at the Major Players

Admit it, you’ve kept a watchful eye on the comings and goings of ARS, Service Experts, Comfort Systems USA, and GroupMAC, haven’t you? You probably know that only one of those four names is currently in use. (I’ll provide the answer later.) If their actions haven’t affected you, that certainly hasn’t stopped you from taking an interest in what these companies are doing and where they are going.

So it’s only natural that contractors are curious about the current state of affairs in the consolidation movement. After all, weren’t these the people who were going to steal your employees and lower the prices for products and services?

Well, I’ve got news for you. None of that happened. And here’s another news flash: the consolidation movement is over; the sexy stories are gone.

I have to admit that I was a little disappointed to learn that the big news of the last four years is now no news at all — a thing of the past. When I took on the challenge of writing a series of articles on consolidation (the final segment begins on page 1 of this issue), I thought I’d come up with some interesting tidbits and maybe a few controversial quotes. But nothing like that happened.

Oh sure, there are some former owners who have an axe to grind about the way stock prices of consolidated companies have taken a nosedive. Or how two corporate management changes in less than four years have had a negative effect on morale. And there are independents who would like to criticize the way Wall Street has affected the hvacr industry. But, for the most part, there has been little backlash against these newsmakers.

In a way, the consolidation movement and I have grown up together. The movement began in late 1996 and heated up for the following two years. I started with The News in early 1998. I’ve made it a point to visit many different contractors during my tenure, including consolidated, independent, utility-owned, and acquired contractors.

One of my first assignments was to visit the “hotbed” of consolidated activity — Indianapolis, IN. I remember sitting alongside veteran reporter and mentor Tom Mahoney as he questioned an ARS regional vice president at one of the several ARS locations in the community. ARS eventually built a modern office building to house employees from nine different contractors who tucked in under the Indianapolis ARS label.

Indianapolis became a prime example of how ARS failed to live up to its hype and expectations. The company found out how difficult it was to integrate so many different entities under one roof. Gone were the familiar neighborhood names, replaced with an ARS logo which confused customers and disembodied employees. It was a case of “too much too soon.”

The other early residential consolidator, Service Experts, seemed to be making all of the right moves at the time. They, too, were located in Indianapolis. This company was the brainchild of Jim Abrams, who began Contractors Success Group (CSG), which would become the eventual “farm system” for Service Experts contractors.

But like ARS, problems eventually arose from trying to integrate so many systems into one workable solution. Stock prices plunged, and, while teetering on the brink, Service Experts was acquired by Lennox in what some people say was “the deal of the century.” Lennox had already started a campaign of buying back some of its contractors in Canada and now the company had a perfect opportunity to extend its market share in the U.S.

Another familiar face in Indianapolis was Airtron. Group-MAC acquired the contractor, part of a group of 13 companies. The consolidator had a lot going for it, acquiring the assets of the Callahan-Roach price system and the USA Alliance of contractors. All of the chips seemed to be falling into place for the Houston-based company. But alas, the company that invested predominantly in commercial and industrial contractors was seeing earning expectations slide and stock prices fall.

GroupMAC eventually merged with Building One Services to form a new company, Encompass Services. The marriage combined a facilities management company with a building services company.

Operating Companies

Of the original four Wall Street consolidators, only one has retained the same moniker, Comfort Systems USA (the answer to an earlier question). No, I didn’t visit them in Indianapolis because they don’t have a presence there (at least not yet). I don’t want to focus too much on Indianapolis, but there seems to be a pattern forming here. Comfort went after commercial contractors, like GroupMAC, and held its own for the duration. Although their stock prices have plunged dramatically, they are retooling and strengthening from within, much like the other consolidators. Comfort has morphed into an operating company.

“Operating company” is the key phrase now. Gone are the days of rapid-fire acquisition and taking communities by storm. The sexy part of consolidation, with all of its tales of corporate infighting and consumer backlash, was now taking a backseat to a controlled, organized way of doing business. In other words, the fun has gone out of consolidation.

The new mode will see occasional acquisitions and tuck-ins, where a strategic presence in the market is needed. There will still be some big contractors courted and wooed by the operating companies. Smaller contractors may eventually fold into larger central operations and owners will still see selling to a former consolidator as an exit strategy.

Upstarts like Blue Dot and R.S. Andrews will continue to make news as they weave their way into marketplaces and solidify their strategies.

I believe there will be a leader who will emerge from the pack in the coming months or years. Whoever can market their brand name to consumers and make it synonymous with heating and cooling will take the ball and run with it. Right now, no company has an edge. But I think at least one will be successful. It may need help from someone else — like a Home Depot or Sears — to do it, but it will happen.

I’d love to poll American consumers and ask them who they think of when they need heating and cooling service. I honestly don’t think they’d have an answer. If an ARS, Service Experts, or Blue Dot rolls off their collective tongues, then we can almost predict which former consolidator will see its market share expand and its stock prices rise.

For the moment, none of this is going to happen because we haven’t seen the true effect of consolidation on our industry yet.

I’m sure we’ll find other sources of interest in the coming months. We’ll be caught up in stories such as the continuing tale of utility deregulation and subsequent competition for market share with residential contractors; the woes of worker shortages and what contractors are doing to “steal” competitor’s employees; the ongoing debate of the best way to price a job (time and materials vs. flat rate); the phasing out of ozone-depleting refrigerants and how the EPA is still busting violators; the technological advances that will zoom contractors into the 21st century.

There will be no shortage of stories for The News to cover. But oh, those sexy consolidator stories — I’ll miss them.

Hall is business management editor. He can be reached at 248-244-6417; 248-362-0317 (fax); (e-mail).

Publication date: 09/25/2000