Business Deals Likely to Stay Strong in 2025
By Bobby Lewis
How to Prepare Your Business for Sale
The era of industry consolidation does not appear to be going away anytime soon. In fact, the topic made it to the front page of the Wall Street Journal back in October, suggesting the industry is both alluring to investors and a lucrative business model for entrepreneurs open to the challenge.
Through the first half of 2024, merger and acquisition activity within the plumbing, heating and air conditioning contractors industry, as measured by the North American Industry Classification System (NAICS), is trending up year-over-year compared to the same period in 2023.
Anecdotally, smaller add-ons have bee on the rise as larger platforms seek to leverage operational efficiencies and build scale to supplement organic growth initiatives.
Prepare your Business for Sale and Maximize Value
Given the continued demand for well-run service organizations, it’s important for business owners to understand what attributes are viewed most favorably and how they can best position themselves to extract maximum value from the sale of their business.
There are dozens of factors that drive buyer interest (and valuation), but a handful have the greatest impact.
First, reputable brands that have established themselves as local market leaders, and employers of choice generally get the first look from institutional investors and strategic acquirers. The HVAC market is a crowded space and only a few contractors reach the top, which is an indicator of a high-value operation. Additionally, of interest to buyers is a healthy mix of service, repair and replacement revenue with little to no exposure to new construction or large, one-time projects.
Lastly, size and profitability materially impact buyer interest, and valuation. Larger, more profitable, operations with a strong margin profile will trade at higher EBITDA multiples than their smaller peers. Size matters.
That said, not every business is a unicorn, and that is fine. There are many businesses that appeal to buyers outside of the private equity universe that transact on a regular basis. Regardless of the situation, there are several things an owner can do to improve the market’s perception of their business and prepare for a successful transition.
• Identify your goals and implement a strategy to optimize the desired outcome. Is your goal to transition to the next generation? Do you want to align with a strategic partner that can help accelerate growth? Is liquidity and retirement your priority? Each scenario requires a unique approach and orderly process to ensure the end goal is met.
• Get your books and records in order. Sadly, there are many businesses that neglect proper bookkeeping and accounting principles, which makes selling the business very difficult – impossible in some cases.
• Evaluate your team, fill holes, solidify roles and responsibilities. As the owner, if you are solely responsible for the company’s success then you don’t have a business to sell. People are the real assets in the trade businesses and having a competent team around you will provide more comfort to future owners as you transition away from the day-to-day.
• Assess the quality of assets, facilities, technology and so on. Are you replacing vehicles on a regular schedule? Do you maintain your facility and provide a welcoming atmosphere for your team? Are you utilizing technology in your business? Buyers will assign more value to a business that is up-to-date and leveraging technology to improve operational efficiencies.
• Track key performance indicators (KPIs) and make improvements. How do your gross and net margins compare to industry cohorts? What are your membership renewal rates? How is employee retention trending? Numbers don’t lie and can help identify opportunities to make corrective actions.
Whether you are two years into building your business or planning to retire next year, preparation goes a long way in ensuring a successful transition. A great place to start is taking a self-assessment and leaning on trusted advisors to help you maximize the outcome.
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