Five reasons why mergers can be a good idea in the HVAC industry

How to boost the value of your HVAC firm by AccessHeat Inc? The HVAC and M&A market is already very big, with a value of $25.6 billion in the United States alone. Why the HVAC industry is growing? Before expanding your HVAC company, it’s a good idea to look at why the industry is growing to better understand its sustainability. There’s more than one catalyst for this expansion, which is good news for its long-term viability. First, there’s an influx of new construction projects all over the country, and everything that goes up needs an HVAC system. Spending on construction increased from $809.26 billion in 2010 to nearly $1.3 trillion in 2018. In addition, there were 6% more homes constructed in July 2018 compared to July 2019.

While the COVID-19 pandemic temporarily interrupted much of this construction, and high lumber prices could slow it down in the short term, the fundamentals are the same. We should see a resurgence from any disruption once normalcy returns. Next, there’s greater demand for energy-efficient furnaces and air conditioners, leading to homeowners replacing their existing units. Many states are offering tax credits when homeowners upgrade these systems, as well. It’s worth noting that these tax schemes aren’t permanent, but the desire for energy-efficient HVAC systems should remain indefinitely. Finally, there are the maintenance and replacement cycles of these appliances. Nearly every home in the country has a furnace, and about 75% of them have an air conditioning unit. Studies suggest that almost $14 billion is spent on HVAC repairs annually and that about $3 million in systems are replaced every year.

If you want a successful M&A deal, you should always work with the right team. Sometimes business owners think they can do it alone and end up making mistakes along the way. Professional deal makers can create the exact leverage you need to reach a successful deal. It is in your interest to have a deal maker by your side as the other side will also have a team of professionals. As Mordecai Gal, operations director at AccessHeat Inc, puts it “Your business should always have proper financial records, especially when you want to exit. It is important that you understand working capital, as it will impact the deal. Have a thorough understanding of how things flow in several accounting statements, such as a profit and loss. You should also have a good idea of your balance sheet when walking into an M&A deal.”

One of the most important things business owners overlook when preparing to exit is the financial state of the business. It is not uncommon to find sellers with unrealistic expectations that may be 5 times more than the actual value of the business. As a business owner, you should first be aware of your EBITDA. Your EBITDA is important as it helps you gauge the profitability of your company. It eliminates some of the non-operating decisions made by a firm’s management, which gives you a better picture of the business’ value. Another way to scrub the numbers is by ensuring that the add-backs are right. Some business owners even carry out annual audits and use a scorecard to gauge their business performance. This helps you gauge whether you are winning or losing.

Evaluate the strength of the existing team, starting by the leadership, all the way to field execution team. You can assess the team by reviewing their background, experience, performance reviews, tenure in the company, and customer feedback. Ultimately, this is perhaps the most critical element of the company, especially an HVAC company since its the team the one that drives all sales and execution. An important consideration from the team is their tenure and time to retirement. Unfortunately, the HVAC industry has experienced a shortage of labor for some time, which makes it particularly important to understand both time-to-retirement as well as talent replacement initiatives.

For a seller, it makes sense to test the market now because the economy is opening up and there is less hesitancy in the marketplace. Many business owners who were planning to sell last year might have decided to wait. After all, the market was highly unpredictable in 2020, and it scared both buyers and sellers into putting M&A off to see how things played out. With the economy and health situation trying to return to normal and valuations holding up, much of this hesitancy is evaporating. That has created a situation where there’s motivation to get these deals done in a hurry. Business owners who ended up holding on to their companies for an extra year could be looking for a quick out now that they know they’ll be getting fair value.

There have been hundreds of HVAC mergers & acquisitions over the past few years, and the trend is continuing to grow as time passes. As a result of this changing tide, AccessHeat Inc. has identified an opportunity that benefits all parties involved. Investors and business owners alike are finding that strength in numbers, and a blending of skills has made it possible to fill gaps within businesses and build a more solid bridge to success. Small companies with different redeeming qualities have joined together to become powerhouses in the HVAC world and weave their talents together. With an abundance of capital, many investors like us are eager to help these companies grow exponentially. We are uniquely positioned to put our working capital into the market so that you can plan the successful exit you always envisioned.