Not long after that I met with contractors who had sold their businesses to GroupMAC (which later became Encompass and eventually went out of business), Service Experts (now owned by Lennox), American Residential Services (now owned by ServiceMaster and combined with Rescue Rooter), and Comfort Systems USA (still operating in its original form). I have to admit, I was pretty geeked to be meeting and writing about these contractors who had sold their overvalued businesses to the new kids on Wall Street, reaping the benefits of an overzealous plan to grow through acquisition - at any cost.
Would-Be MillionairesNot surprisingly, one of my next road trips following the Baltimore visit was a trip to Las Vegas to attend a one-day seminar titled "How to Sell Your HVACR Business." Funny how so many contractors were in attendance, merely out of curiosity (of course). The presenters asked me not to take pictures at the event, as most of the attendees did not want employees and competitors to see their faces in The News.
These people were getting lessons on how to prepare their businesses for sale, i.e., cleaning up the accounts receivables, tightening up the inventories, and putting employees in clean uniforms, etc. These were attempts to make the businesses more appealing to the Wall Street consolidators. But, to be frank, the buying frenzy was so great that a clean truck and a strip mall address looked good enough to many buyers.
At that time, contractors were usually given a lucrative amount for their businesses as long as they "hung around" for two or three years to ensure the transition was seamless and the business ran smoothly.
The problem was that they wanted to run the business as they had for years prior to the acquisition, and the fact that they weren't allowed to do so was one of the main reasons for the failure of the consolidation model. But this subject is one for another column.
So here are the former owners, cutting deals that gave them cash, or cash and stock in the parent company, or possibly all stock. The ones who took the cash and ran were the luckiest, despite having to pay some hefty taxes on their sudden wealth. Others who, either by their own choice or company mandate, took part of their buyout in stock, saw their wealth dwindle sharply as stock prices steadily dropped.
Back In BusinessMany former owners, whether they wanted to or not, felt compelled to return to the HVACR contracting business. I know quite a few of them. After honoring a no-compete clause when they left their consolidator employers, these contractors suddenly found themselves back in their same markets competing against their former employers - and often winning.
Some of these people had to go back into the business. They were the unlucky ones who owned too much devalued stock. They couldn't afford to retire and vacation or golf all of the time. They had to make a living for themselves and their families.
But others simply could not get HVACR out of their blood. Some of them went into consulting, some joined another family member in the business, and many others bought back their old business from their former employers and retained many of their former employees and customers.
Oh sure, there are those that are enjoying their early retirements. But there are probably a lot more who are back to where they were seven years ago, a little bit wiser and a little grayer.
Wow - I've gone all of 2004 without discussing consolidation, until this last issue of the year. Happy New Year, my friends - may 2005 bring our industry a few more millionaires.
John R. Hall is business management editor. He can be reached at 248-244-1294, 248-786-1390 (fax), or firstname.lastname@example.org.
Publication date: 12/27/2004