A few years ago a tidal wave hit the hvacr industry — consolidation. Unless you just dropped in from Mars, you know the impact of that wave. We’ve written about it, talked about, and pooh-poohed it until it finally died down recently.

But there was one aspect of the consolidation topic that didn’t get a lot of press: how the former owners are managing these days. Some of them used consolidation as an exit strategy, while others chose to eliminate the personal liability of running a company. Others saw a wide expanse of business opportunities ahead of them and chose to stay on to manage the business.

The ones who retired or moved on to something else are probably doing just fine, thank you. After all, many of them got sales prices for their businesses that they never imagined possible. Consolidators had a lot of venture capital to burn, and they were not shy about using it to land some mighty big fish. “Overvalued” became a catchphrase, and contractors sought out business consultants to help them ready their businesses for sale, wrapping everything up in a neat package.

It probably seemed like nirvana to some. It was like a personal visit by Regis Philbin, uttering that already tired phrase, “Who wants to be a millionaire?” In short, contractor-owners finally had a way out, and a profitable one at that.

No Such Thing As a Sure Thing

But not everything was rosy. The consolidators were not willing, or able, to hand over a complete bundle of cash, shake hands, and change the locks on the doors. Deals were not that simple. There was the matter of stock — stock in the new upstart Wall Street companies that looked like a sure bet.

Some owners negotiated a typical 50-50 sale: half cash and half stock. Others got better deals, more cash and less stock; one I know of got all cash (lucky person!). The cash was spendable instantly — the stock was not. Shares of stock could not be traded or redeemed for a specified period of time after the sale, typically one year. So owners would have to keep a watchful eye on the stock market and hope their companies performed well and met earnings projections.

No problem, they hoped — if the companies performed up to expectations, all would be well.

But all was not well.

Due to no fault of their own (in most cases), former owners turned general managers were seeing red. Stock prices were plummeting, despite their efforts to grow their companies and maintain healthy profitability. I could rehash the reasons for the plunge in stock prices, but warmed up leftovers get a little stale after a while. Suffice it to say, the bloom had gone off the rose.

Stock prices bottomed out, in some cases falling 90% from their all-time highs. It wasn’t time to line up at the cliff, but for former business owners, it was a time to be concerned. I’ll use the following hypothetical example to demonstrate my point.

ABC Heating & Cooling is offered and accepts $1 million for its business from the Big C Company. Mr. ABC is given a cashier’s check for $500,000 and gets the balance in Big C stock. The stock is selling at $25 a share (which equals 20,000 shares), and he has to hold onto it for a year. Not bad. He’s made a clean break, and now he has signed a three-year deal to manage his old business at a salary of $125,000 a year. Life is good!

But wait. There’s a rumble in the distance. Big C is having trouble meeting its earning projections, and investors are getting nervous. The stock price begins to slip, and slip, until it’s finally trading at $5 a share. That $500,000 nest egg is now worth $100,000.

Oh sure, the former owner got more than his business was worth when he sold it — but 40% more? That’s the difference between the $1 million and what he eventually got out of the business: $600,000. My guess is that he lost money on the deal.

So now here is this general manager, unhappy over the evaporation of his assets, with two more years on his contract to run the company. What does he do? What would you do?

I invite former owners to call or e-mail me. (Feel free to remain anonymous.) I’d like to hear your story.

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