Why do private equity firms buy HVAC companies, and what should an owner ask?

An HVAC company can look like a steady business to an outside investor. Homes and buildings need heating and cooling serviced year after year, and customers on maintenance plans come back without much selling. A private equity firm may see a route to join several such companies under one roof. If one calls you, it helps to know what it is really looking at and what to ask before you share your books.

What makes HVAC attractive to a roll-up

Firms tend to look for repeat revenue, a customer list they can keep serving and a team of licensed technicians who are hard to hire. A dispatch system, a service van fleet and a good local name matter too. Ask the firm what it hopes to build, because a business that suits one investor’s plan may not suit another’s.

Platform or add-on

A platform buyer is starting its HVAC group and often wants the owner and management team to stay and grow it. An add-on buyer folds your company into a group that already exists. Your brand, office, software and even your role can change quickly in that case. Ask which one you are, and ask to speak with owners who sold to the firm before.

People, brand and customers

• Will the technicians keep their roles, pay structure and service territory?
• Will your company name stay on the vans and invoices, and for how long?
• How will maintenance-plan customers be told, and will their terms change?
• Who will run the office and dispatch day to day?

Rollover and earn-out terms

Many firms ask the owner to keep an ownership stake or accept part of the payment later, based on future results. Ask exactly how results are measured, who controls the decisions that affect them and what happens if the firm resells. Have your lawyer and accountant read these terms before you agree to anything. The private equity overview covers the general picture.