Name: Live Webinar: The HVAC M&A Market: A Buyer’s View on Value, Growth and Successful Outcomes
Uploaded: 2026-09-22T16:16:11.219Z
Duration: 1 h 36 s
Description: Live Webinar: The HVAC M&A Market: A Buyer’s View on Value, Growth and Successful Outcomes

Transcript for "Live Webinar: The HVAC M&A Market: A Buyer’s View on Value, Growth and Successful Outcomes": Good morning, and welcome to our live webinar, the HVAC m and a market, a buyer's view on value, growth, and successful outcomes, hosted by PKF and Connor Davies and PKF Investment Banking. Before we get started, I'd like to go over a few housekeeping items so you know how to participate in today's call. We're pleased to offer live post captioning throughout the webinar. To access the captions, please use the stream text link located in the chat section of your attendee panel. You may submit questions for today's presenters at any time by clicking on the Q and A tab in the right hand panel. We will address as many questions as possible during the final ten to fifteen minutes of the webinar. Any unanswered questions will be followed up on after the event. As we near the end of the webinar, we do have a short survey which will be prompted and your response is greatly appreciated. At this time, I'll pass the baton to Alberto Cinesi, partner with PKF Investment Banking. Thank you, Arlene, and, good morning, everyone. Thank you for joining us. I'm Alberto Sunezi, partner with, PKF Investment Banking, and I will be moderating today's discussion. For the benefit of everyone, ETF investment banking is an m and a advisory firm focused on predominantly sell side m and a advisory transactions in what we call the middle market. We typically advise, family owned, founder owned businesses when it comes to exploring their strategic options as well as private equity firms when exiting their portfolio investments. Lastly, PKF Investment Banking is part of PKF O'Connor Davis, which is a top 20 CPA and advisor firm nationwide. I think we're good to get started here. Let me start by just providing the backdrop for today's webinar. Alright? So the overall picture here is that for HVAC services and contracting business owners, really, the best time to understand investors' expectations is well before a transaction is imminent. So today's webinar is designed to make those expectations tangible, concrete. So we'll talk about what buyers value, where diligence tends to focus during the process, how deal structures affect owners, and lastly, how the right investor approaches integration and culture. I will be joined by three experienced investors who bring distinct perspectives to the table. We will reserve time for your questions at the end of the panel discussion, so please submit your questions through the q and a function as they arise. So the speakers, I'm excited here. So we have Caleb Donnelly, VP of m and a at Heritage Holding. We have Robbie Ulik, cofounder and partner at Goodsprings Capital, and Bill Tumult, VP of m and a at Premistar. Caleb, why don't we start with you? Alright? Why don't you give us a brief introduction to Heritage Holding, alright, and really the types of businesses and partnerships that you look to, to crystallize as you think about your broader HVAC strategy. Yeah. Of course. Alberto, team, really appreciate you guys having me on. Excited excited to be here. So Heritage Holding, we're we're an investment firm based in Boston. We also have a smaller office in New York City. And what we've been doing for the last ten years or so is partnering with companies in the specialty trades and and contracting businesses throughout The US, for the last decade. Most of that tends to be founder or family owned companies. And for two years now, we've specifically been building a group of companies across The US in the HVAC, mechanical, plumbing, and electrical space. And so over the last two years, we've partnered with 11 companies, across five different regions in The US. And I I think our thesis around this is, you know, we we really try to partner with companies and help on some of those things that are important but might be less urgent. You know? Most of the owners we partner with, they're fighting fires every day. They have very busy schedules, and we try to help move the needle on some of the things that they might not have the time time to today. And, of course, we we help on daily support as well when it comes to things like hiring and that. What we find most compelling as we're looking at companies to partner with, one is the founder and team situation. Whether it's the founder or their team behind them, folks that wanna stay and continue to grow, We place a very high emphasis on partnering with high integrity founders and sellers. We love companies that do a lot of, direct to facility owner work. They do a lot of mission critical work. And, also, what we find compelling are those companies that have good technician and field depth. They have a culture that retains technicians, and they have a system that helps bring, younger technicians to the to the next level. So that's a bit on us, what we've been up to, and and the things that we we look for. Great, Taylor. Appreciate it. Rob, could you please introduce Goodsprings Capital and describe how you think about just investing in HVAC businesses? Sure, again Alberto thanks for having me and good to see everyone on the panel here and guests glad to be a part of it. So Goodsprings Capital, we are a New York based private equity fund investing out of our first fund Goodsprings Capital Fund one. We focus exclusively on founder, family, and entrepreneur health companies in the industrial and infrastructure services space and the focus for us is really on, as Caleb mentioned, partnering with high integrity founders, families, entrepreneurs, but you know also a focus on the growth mindset, right? So groups of managers, founders, entrepreneurs that have a defined set of growth initiatives both organic opportunities and strategic M and A in front of them that we can help them sort of hit the accelerator a little bit harder than they have over the over the preceding period. We are we are heavily invested in HVAC already. We have two platforms today both one is residential which is Kimball Mechanical out of Fayetteville, Arkansas which is an HVAC plumbing and electrical business focused on new residential construction both multifamily and single family. And then we have a commercial HVAC business which is Velasco Mechanical based in Vineland, New Jersey which is a union based commercial contractor focused on Southern New Jersey, Philadelphia and the Greater Delaware area mainly servicing healthcare, education, data center and industrial clients. So it's a it's a space we believe has really significant megatrends behind it in terms of aging infrastructure, energy transition, regulatory driven changes that that we're happy to be on the right side of and wouldn't be it wouldn't be against finding a third platform as it were so that's a little bit on us and appreciate the questions. Go ahead, Rob. Appreciate the perspective here. Bill, I mean, Premistar has been very acquisitive, right, since Partners Group, took over Premistar, formerly, Redi Industries, right, from Audax Group. Why don't you just introduce us to Premistar and how you, you as a strategic acquirer sort of evaluate HVAC services and mechanical contracting companies? Yeah, sure. Thanks, Alberta. I appreciate you guys pulling this together, and giving me an opportunity to speak. So PremiseStar is a large strategic owner. We've got over $1,000,000,000 in revenue and our focus really is in HVAC plumbing and controls with concentration in mission critical end markets. That's really where we focus and is our bread and butter. We've been very acquisitive since partners, group involvement. Actually, prior to, partners group Audax owned us, they were also very acquisitive. But, since partners group became involved, we've done 40, 40 plus actually 42 businesses we've acquired and, over $800,000,000 of revenue over the last five years. So large business, looking for mostly family owned businesses that are good partners, you know, similar to what, Caleb had mentioned about, you know, all the qualities of what those what makes good businesses. The way we evaluate these businesses, you know, really is we're trying to understand the strength of the customers, the workforce, and and the management teams that exist there to assess if it's a good fit for our business. And is there an opportunity, really big picture for us to to grow the business together, and take what the prior owners had built, and take it kinda to the next level? And that's that's really what we're looking to do in throughout the country. That's great, Bill. Appreciate it. So now that we have your perspective here on the table, why don't we just move on to the market itself? Alright. So, Caleb, back to you. What are some of the key trends that you're seeing in the in the broader HVAC market? And and and how do you think about sustainability of those trends? Yeah. It's a it's a good question, Alberto. I I think I have one main trend to highlight that that's not gonna be too surprising to hear, and then a couple subsequent trends that relate to that. So, you know, for folks running HVAC mechanical plumbing companies, I I think they're near this is near and dear to the heart of it is tough to find high quality labor in some markets. Geographies do differ, but experienced technicians, often are hard to come by, and there is scarcity of labor. And I don't know if that gets solved over the next five years. I think the needle moves in the right direction, as more folks enter trade schools, but I don't think it fully gets solved, and I think that dynamic's going to continue to exist. And and what that creates is also this trend of really needing to build a system or culture or a team that can train younger technicians and and bring them to the next level from, you know, first year tech to a third year in only two years. So a heightened sense or need for training, of folks in the field, I think that trend is gonna continue to stay. And I also think one of the trends that relates to this is that there can be a different depending on the market, there is some different makeup in the labor pool than it than it was thirty years ago. There might be different mentalities among the younger generation. You might have your project managers might have to manage labor differently than they did in the past. And I also think some of that trend trend continues to, stay in place. Other things we're seeing is, you know, increased technology adoption, whether it's a field management system or, even even certain AI tools when it comes to estimating and bidding. I think some of that continues to be developed at a slower level, than than the labor side. And then those the two two main that I would highlight is seeing a lot around labor dynamics and then and technology adoption over time. That's helpful, Caleb. Now, Rob, back back to you. Caleb touched upon technology and AI specifically. What are your thoughts around AI and and really how other advances in, technology will impact of our HVAC space going, forward? I'll add on to what Caleb said as sort of the second part of the answer to this question but we've seen AI impact the business kind of from two angles which is one, the build out of data center capacity and the need for you know AI backbone if you will in infrastructure has definitely added a leg of the stool to the addressable market for our commercial HVAC platform. As you look at, you know, companies that are that are capable from an execution perspective and a technical perspective of of actually putting in the guts of these buildings for for data centers and AI, it's it's added a very nice profitable piece of work to the addressable market, particularly for our Alaska business in in Southern Jersey. The question for us is obviously, if anyone has the answer on where all of this data center construction ultimately lands, I'd love to talk with you afterwards. So we've been wary of trying to make sure it's a leg of the stool, but not sort of the central growth platform of the of the company's trajectory. The other point is that as we've looked at the the sort of AI data center construction ecosystem, you know, the builders of these of these of this capacity are very, very focused on uptime, time to completion, project execution as opposed to price. And so what it's doing in some ways is disfiguring some of the profit margins of some of the businesses we look at from an overall perspective and so we're very wary of trying to make sure we understand the sustainable profit margins of of HVAC businesses that are heavily into AI that we're looking at. But it certainly added a nice piece of the addressable market that we're certainly benefiting from today. The second piece is really, you know, we are trying at Falska and Kimball to to use and implement AI tools that are not just sort of adding sort of gauzy, you know, efficiency gains sort of things real tangible, you know synergies and earnings growth. And a couple things that we've been focused on is there's a number of AI agents and software and particularly one called Phase Shift which both Kimbal and Falaska have used that's focused on AR. So as we think about as a private equity investor cash generation these programs that help you kind of essentially eightytwenty large invoices, easily figure out payment structures onto subcontractors, those have been really helpful. Kimball uses a program called Scaffold which pulls job data automatically from your system and lets you create job schedules and purchase orders seamlessly and they've seen some real gains from that. And then, you know, software like Beam, which I think Caleb was talking about, which allows you to to really do takeoffs and estimating with with reduced prep time, reduced estimating errors because as everyone knows in these project based businesses, estimating and bidding, that's the heart of the business. And if you get those wrong, you know, the margin profile is really up for degradation. So, you know, all all around coming to say is that, you know, companies that are able to harness AI technology both off the shelf and from their own kind of internal bots or agents and not just kind of wrap it in buzzwords, they will have better, you know, competitive positioning, more efficient operations, better margins, and more consistent cash flow. So it's certainly impacting the business from from those two angles. Super helpful, Rob. And we see it all the time ourselves as we work on deals, frankly. So I'm glad that you're sharing the same perspective. Now, Bill, from your standpoint, where where do you seek sort of the the clearest acquisition needs? Is it geography? Is it a specific end market? Is it service mix, talent retention? You name it. Kinda curious to hear your thoughts on that. Yeah, I mean, I think all of the all of those elements are critically important for us to continue to develop and evolve each of them. So I don't think about it as any one of them when I have conversations with sellers throughout the country, those are the things we're talking about all the time. The challenge with running an m and a strategy is you have to be opportunistic. So you you you wanna intersect with buyers that are out there that kinda fulfill these things. For us in 2025 and '26, one of our goals was to really start to diversify geographically. If you think about, the history of how we've grown, we're really strong in the Midwest, but really hadn't, other than in the Southeast, hadn't really explored the East Coast. And we were fortunate enough to, you know, have the opportunity to buy businesses from Massachusetts all the way down, to Florida. So geography diversification was a was a really important one for us. But again, it's somewhat opportunistic in in what we, you know, what we happen to meet in the market. You know, these are these are all themes we need to stay, in in front of and and keep kind of front of mind. But from our perspective, you know, m and a is about finding good strong partners, and, you know, trying to find ways to grow them and diversify our business in all these different areas. So I struggle to to pick one in particular. We happen to have some success in geography, but we're thinking about these things in in every conversation that we're having around m and a. Thank you, Bill. Appreciate it. Let's move on to the topic associated with what buyers really value. Alright? Back to you, Rob. When you look at at, in an HVAC business, how do you sort of distinguish between growth on on paper, call it at face value, versus sustainable long term growth? In other words, what gives you confidence? What evidence gives you confidence? Yeah. That's a good question because it's it's really the heart of the valuation question for for private equity investors and and strategics because you know I how you phrase the question durable repeatable growth because really what we're what we're trying to apply a multiple to is that is the sustainable earnings level of the company, right? And people talk about multiples but really more important is really what am I applying that multiple to. So when we look at companies, off the top, one of the most important things is separating organic growth versus acquired growth. And many of the companies that we look at are family founder held businesses, so they haven't done M and A before. But you really want to make sure you're understanding, you know, like for like over the years has a company been able to grow organically through cycles. And once you have those, you can sort of you can sort of understand what the driver of the growth is, you know, off the page of paper. The second is sort of the revenue mix that we look at. So broadly broadly speaking, as I think about HVAC businesses kind of have three buckets that behave differently. So there's, you know, installation replacement revenue, which is project based, lumpier, tied to larger projects. There's repair and service revenue, which is more break fix, which is in the middle. And then there's sort of the planned maintenance agreements where people are signing up for regular cadenced revenue that is highly forecastable, high margin, and typically, you know, very high customer renewal rates, 90% that people can forecast long into the future. And I put those in that order. You know, the the lumpy project based revenue is sort of, you know, what we think of as harder to forecast, harder to value from a multiple perspective because it's harder to cadence and layout from a forecast perspective. And it goes up from there in the in the sort of planned maintenance agreements are obviously the stickiest, the most contractual, the most predictable, and and sort of garner the highest multiples. I would tell you from from the Goodsprings perspective, what what we've been focused on in our types of businesses is finding the more contracting type businesses with with lumpier projects because we think those those companies at the end of the day do have high barriers to entry and sustainable competitive advantages. Taking on large projects from an execution and a logistics perspective is very difficult and those businesses should be should be highly valued. And what we've tried to do over time is take those businesses with lumpier revenues and and sort of augment that with more service based revenue that we think should garner a higher multiple in the future. The only other things I touch on is when when you're thinking about preparing your business or thinking about your revenue base, make sure you understand price versus volume, right? So in the past, particularly in that kind of twenty one to twenty four period, a lot of growth in the space was simply catching up with cost inflation as opposed to catching up with more jobs, more customers, more projects, more technicians in the field and we as a buyer will look at that to make sure that the actual service lines that are being delivered are growing fundamentally versus just price increases. I would also say we look at a couple different things to prove out kind of recurring or reoccurring and that's customer retention rates. How often have you worked with a customer over a given period of time? Are you actually visiting with that customer and serving them in a highly sustainable way? And then the other thing we look at is people tell us reoccurring revenue. What we, alright, show us show us the facilities that you've been touching multiple times in the last three years, right? Are you in doing a refab or an upgrade or or a rehab project? How how how repeatable and and how recurring is that really? And show us show us the data. And then I would just on one last thing is, you know, broad based growth versus concentration, right? A broad set of customers, project diversification, end market diversification, even down to the very simple things. Are are two project managers responsible for a ton of growth. Is it is it one end customer, one end market, one large commercial account? The more you can show that's broader base that the more value you'll probably capture in the end. That's outstanding. Thank you, Rob. Very helpful. Now, Bill, you probably having worked with you, right, on on a few transactions here, you we may be taking a portfolio wide approach, right, just given the different companies that you have bought over time and also the the sheer size of of Premistar. But, again, what what are some of the the attributes that you just find the most compelling? That's the first piece of the question. And then the second piece of the question is, how important is recurring revenue and and contractual relationships as opposed to project based business that it's lumpier in nature? Yeah. I mean, what we're really trying in diligence when we're looking at companies and having conversations about, the attributes of, you know, their customer service line markets, it's really trying to understand the life cycle of what happens in the industry. Right? It starts with preventative maintenance. It pulls, it pulls through to break, fix, and then ultimately turns into projects. And I think when you look at customers, we're looking for long standing customers with a mix of both service and recurring projects. And within that recurring projects, environment, you know, how how are those projects being led? Are they being led by general contractors because they're larger and more complex, or are these direct to owner relationships that, you know, there's really no bidding that's happening? So those are attributes as it relates to customers that are super important to us. When it comes to service lines, I mean, it's it's sort of obvious. Right? It starts with preventative maintenance and, TNM relationships, not to exceed or some other, way of of defining it, and then that leads itself to pull through work, and pull throughs the break fix, the emergency calls, they pick up the phone and need something done immediately. Then again, it ultimately leads into projects. But I think it's important when you look at companies that they have the capability to do all three. If you're just looking at pure service companies, you know, a lot of times, they don't have the capability and can kind of they can't play the proper defense when when real projects come up. So they have they kinda let somebody else in the door to potentially take some of that work that they were otherwise taking. So I think it's important to have the full life cycle of, what a customer's thinking about every day. And then, you know, market attributes, for us, it's it's about becoming a partner with the customers. We we don't wanna just be another service provider on a list that gets called. We we want customers that are willing to pay a premium because they trust us. They know we're gonna get the job done. You know? So that that tends to focus on the mission critical side of things where you're in heavy industrial environments, food processing, hospitals, data centers, those types of things, or those types of end markets where, you know, you truly are a partner. And then the second part, you know, recurring versus contractual. I mean, this is, you know, what I talk about every day both internally and externally in trying to figure out that balance of what companies have because, you know, like I said, I I do believe that there's a full life cycle and you wanna have, relationships in in each one of, the the the end mark the end services that are being provided with customers. So for us, it's more important that, you know, you you're a company and you know who you are and you're not trying to do something and you're set up for something other than what you're trying to accomplish. And what I mean by that is, you know, if you're really a service company and you're out there trying to take on million dollar, $2,000,000 projects and you're really not set up to do it, then we're gonna see it in the data. We're gonna, we're gonna we're gonna be able to bifurcate those projects and understand, you know, where you're winning and losing. And, you know, to the extent you're taking on larger and larger projects, and those margins are getting more and more compressed, not just because they're larger and there's more volume, but but truly because you're you're underperforming where your estimates were. You know, I think that's where you you get yourself in trouble. So, you know, neither one, is, you know, purely on on its face better than another. It's more about how much risk you're taking on and and kinda knowing who you are, as a as a provider and making sure you can do it, you know, confidently. And and our diligence process is all focused around trying to figure that out. So how much of that work do you have? You know, what are the buckets? How successful have you been? You know, and then and then, ultimately, how comfortable are we to pay a certain price for what you've been doing, whether you've been, you know, successful or not successful? Great points here, Bill. Thank you. Caleb, back to you. Mhmm. Again, talking about the operating backbone. Alright? So call it field and conditional leadership. Right? Recruiting and retention, job costing, you touched upon that before. I mean, which of which of these items here sort of move from kind of check the box items, right, through something really value additive as you navigate your m and a process? Yeah. If I just think through, like, the list you cite, I'll I'll go through several of those. I I think one that becomes value critical in our diligence process is technician retention and field retention. Because those it it points to a lot of different things. Right? It it can point to, hey. What is the culture in the field or at the company? What is the strength of the leadership, the form, and the project managers in the business? Or even just points to, like, are are is the business able to show folks in the field a path a path to grow and a long term opportunity? So retention of the field is is an important one for us with the caveat that we understand, hey. Some businesses flex field labor up and down based on seasons, project size, if they're in the industrial world, you know, outages, things along those lines. So we expect some turnover for the up and down seasonality or or for certain large large initiatives. But for the most part, that having that core team in the field, we we view that as critical in in our process and really like to wrap our heads around it. Another one you you you called out, Alberto, is field leadership. I think this is also critical. It is the project managers to foreman. Like, what what is their tenure, their skill sets, capabilities? I think folks like that in this industry are just worth their weight and goal. And so we like to understand those leaders, out in the field and, because to us, our hope is that we can create opportunities to grow with them, for those folks to grow alongside us and and to build build around them. When it comes to technician recruiting, I'd say for that one, that's an area that we love to help on, and we can build systems and processes around. Day one, the first thing we do when we partner with the company, we almost always have the ask from the owner that we partner with, can you help us on finding folks in the field or in our in our office? And so we start that day one. That that's the way that we try to build trust with our companies by by delivering in that way. So I don't think there needs to be a robust recruiting engine now. That's we we'd rather see that retention engine and then be able to support on the recruiting after our partnership. I think some form of job costing is critical to us. It doesn't have to be perfect. That's not our expectation, but the ability to understand what projects are winning, which projects or or project types are having a tougher time, it it's good to understand that mix and data for us. And then when it comes from, like, just the operating systems perspective, like, our our mentality is those are things that we work with our companies on over time, but the reality is most of the businesses we partnered with, they've succeeded for decades without robust software and systems, but just through good leadership and field execution. So we don't necessarily need that at the start of the partnership. It's something that we can evaluate over time. Thank you, Caleb. Appreciate the perspective, which we certainly sympathize with. Now why don't we talk about valuation drivers and red flags here? Let me just start with you, Caleb. Again, what are the factors that most often sort of behoove you to, expand valuation or just get increasingly comfortable with valuation consideration for a company in this. sector. I might hit on, like, two or three of, like, maybe maybe some of the softer side things that when I look back at the companies we partner with, what enabled us to get higher on our valuation and put forth a better offer, I think one is just a desire to grow. Sometimes that's the the seller of the business. Sometimes we we recognize that the seller or or the owner is selling to work towards a retirement. So it it doesn't necessarily have to be them, but at least their team behind them that they've built and set up. That mentality and excitement to grow, goes a long way in, how we the offers that we can put together and how we can structure our deals. Just knowing that we have a company that's excited to try new things, improve year in and year out, and and be a partner alongside us with that. I think another is, alluded to at the start, but but this one actually does mean quite a bit is just seller seller integrity. Do we feel that the person we're partnering with is going to look out for the best interest of their their business after receiving quite, you know, a large check at closing? Look out for the best interest of their employees like they have done in the past and as well as us, the the investment that we made. So I think just having a seller that cares deeply about the partnership and transition going well, We we look for certain things in the deal process when it comes to team retention, when it comes to how a seller talks about their team to give us indicators of those things, but that that's important and and does help us drive a higher value. And then lastly, I'll just call out durable customers, and I think Rob and Bill have alluded to this. Those customers that are long term, they repeat, they're here to stay. You have some sort of advantage inside of that customer, where where they truly value as a a a partner. Those are three big things that will move the needle for us as we try to, you know, bridge the gap to to get a deal done. That's helpful, Kate. Appreciate it. Bill, I mean, you've worked on many deals, right, throughout your career. And and sometimes you look at a business, you may say, well, it's not perfect, but it's a good fit for us. Alright? Because we need footprint in a geography. Right? We need that end market presence, all of the above. Right? What are the nonnegotiables built for you on a deal? Yeah. I mean, businesses, unfortunately, none none of them are created perfectly. Right? They're created by people who, you know, for different reasons, they were they were started. They grew in a certain way. And so there's always gonna be an element of know, strengths and weaknesses that exist in these businesses. And that's gonna be a function of the people who, you know, grew them and and how they grew with their customers. I the the three areas that I look at when I, like, come across a business that, you know, isn't perfect or I can't, you know, get a lot of conviction from others around is, does the business have a demonstrated history to it that, you know, it can withstand up and down ups and downs. They've had big projects, small projects, but they've still been able to kind of eke out or get close to a margin that that is consistent. I look at markets. You know, are they in markets that are, you know, I just have enough opportunity, that will allow them to grow and grow profitably? So that's another, like, really important part of, looking at an imperfect company and getting comfortable that it it's the right one for us. I I'd say the one that's, like, nonnegotiable is tested leadership. Then that's either gonna be that's and that's not perfect because every company is a little bit different in terms of size and kind of what investments have been made. But, you know, I'm looking to the own if the owner's looking to leave immediately and there's no kind of, like, second lieutenants or the next the person in line that's gonna step up, That's, you know, it's a big red flag for us, and it's kind of a nonnegotiable. Now, you know, not not every situation is perfect, so you try to kinda step back and say, okay. If I if that's what's going to happen and I don't have this, second increment, I'm taking on more risks, so it's gonna be reflected in valuation. But then I'm also trying to figure out with my team internally, is there something we can do about this? Is there somebody internally that there's an opportunity to to put them down there if the owner's gonna kind of ride off into the sunset? You know, or is it we are, again, in a market where we can attract and retain good, strong leadership. For me, it yeah. That's really, where it starts and stops is because when businesses hit walls or, you know, kind of go sideways or can't figure out how to get to the next place, it's through leadership. It's strong people who understand the market. They understand the industry that they're in, and they have ways of pivoting and and and finding a way to be successful despite, you know, the the odds that they may have in front of them. So from my perspective, leadership's a nonnegotiable. Again, it doesn't have to come with leadership, but we've gotta we gotta solve that problem one way or another. You missed some really good points there. Rob, again, on valuation drivers and red flags. I mean, can you comment on which red flags really most often cause. you as an investor in this space to rethink about deal structure and price and sometimes even to walk away from a deal. Of course, I highlight three things and I you know I think it's in the intention of almost every buyer to if you're extending an LOI or you're entering and entering into the later stages of a contract to close on the numbers that you put forth and that's always sort of in the in the good faith of a discussion. The one thing I would say is if you have issued numbers for the rest of a year or a period and the numbers start to tail off and you're missing significantly on those budgeted numbers, you should expect some pushback from a buyer who is obviously at that point very focused on sort of the at closing multiple they'll be paying for the business. You may also hear you know some friction arise if numbers start to get missed that let's let's go into wait and see mode but you know let's wait till the end of the year end of the period here and see where the numbers come in and we can we can reevaluate at that point. The second piece which is a bit of an extension of that is also the backlog and what we look at is kind of book to bill trends right so as you chew up backlog which is good because it probably means that the performance is keeping up are you replacing that with with additional work out into the future? Because as important as that closing multiple, if not more important for the next buyer, is what's out ahead of us and what are we what are we walking into? Or are we, you know, is the business genuinely growing or or is the pipeline at a dry up and we're paying a peak multiple on peak earnings? And that'll drive, you know, kind of further scrutiny in the process. The other piece, and I'm sure Caleb and Bill can can attest to this, you know, there are diligence paths happening at the same time, not just financially, but legal, environmental, reputational. So as as issues arise potentially from facility visits on the environmental side or legal liabilities that arise, those can usually be creatures of contract and they can be ring fenced in terms of risk allocation or indemnification, but those those are the types of things that can throw kind of you know a stick into the the bicycle wheel and just and just have to be worked through by both parties. Totally get it. Totally get it, Rob. Now as you as you know, right, sometimes business owners, they they just tend to focus on headline valuation first. Right? Maybe they hear it from some of their friends who may have sold in the past. Right? But what are some of the other economic and governance terms that really can can materially change the outcome for a seller op? Sure. I'll break this down into a couple, couple pieces as well. It also would be remiss of me not to suggest that as you look at potential transaction structures, a good M and A banker is a helpful resource along with good M and A counsel and tax advisors because those are some of the things that you know the variance of a deal that that can highly impact both what you what you receive at a closing and then the sort of what you're setting yourself up for in terms of the next chapter of the company going forward and potential value capture down the road. Total EV is only kind of one input on what a seller can be kind of counting on it at closing. When you look at that closing consideration, I'd highlight one or two things which is there's always a discussion on working capital, right? So when a transaction is closing, this is a typical M and A mechanism to make sure the company has adequate cash to run the business post closing. It's not meant to be a game and one by either side, but there will be a working capital peg that's set for the company and you want to make sure you look at that calculation very seriously that it takes into account any kind of heavy AR buildup, inventory swings, seasonality in the business so that your consideration at closing isn't reduced by, you know, a significant amount or eaten into because that that capital, you know, that working capital peg hasn't been set correctly. The other piece I'd focus on too from an equity waterfall perspective if you will and what what you can expect at closing is definitionals around net debt or liabilities of the business. So how is your debt being treated? Any capital leases that are included in in net debt, deferred revenue on service contracts potentially, accrued warranty liabilities, anything that can be treated as a liability, make sure you understand what's being taken out of the enterprise value number so that you you can correctly account for what you expect to have at closing. I would also say so most most deals, at least in our perspective, have an earn out consideration. You know, there's a there's a consideration at close plus something that's contingent on the performance of the company going forward. It's very important that as you look at earnout potential that you understand that those measurement periods, the metrics of the definition are very tightly defined so that you understand and have control over over how that earnout is going to be paid and and the goalpost that everyone should be driving towards. It's a it's in particularly important when you're looking at if you're selling to a strategic or a larger company that they're not going to change, you know, accounting policies or allocating costs from overhead to you so that earn out metric is somehow disfigured over time. So just make sure you have kind of clear definitions of earn outs, and any sort of metrics and audit rights are clearly defined in those in those contracts. We typically in a transaction structure look to have minority partners who remain owners in the business, so 20 to 30% of that equity is characterized as rollover equity. And what you want to make sure is that you also understand the structure, the terms, and the class of the stock that you're rolling into, right? So when you look at, let's say I want 20 of the business in rollover, you know, from an economic perspective you want to make sure you understand if there's a financial buyer coming in with a preferred security, if there's dilution rights or drag along rights or anti dilution protection, those are things that can materially change how your 20% is sort of in the capital structure and what it means what it means on the next turn of the business. And then just from a from a, you know, governance and control perspective this will I can't cover every potential permutation, majority, minority deals, but making sure you understand your ability to retain a board seat or the decisions you can make without talking to the new owner, additional, you know, additional capital that you can bring to the business or debt or do small M and A deals or capex without certain thresholds being met. So those are those are all kinds of things on a checklist that that you really need to go over and not just focus on, you know, they told me EV was this and that sounds the most attractive. An EV with, you know, high EV with a lot of carve outs, callbacks, earn outs can eventually be a worse deal than one with a lower headline value that has some protections on that consideration and also your role going forward. Very helpful, Rob. Why don't you why don't we transition over to integration and culture? Alright? Because I wanna make sure that we leave few minutes at the back end here to go through some of the q and a here, because we did receive a number of questions here. Bill, how does Premistar approach integration, right, while making sure that, you know, the reputation and the culture and the legacy, right, of some of these companies that were acquired actually stays stays in place. Yeah. I think the the important part of that question is, you know, what what is local versus what can be centralized. Right? I I think from our perspective, we what we don't do is is go in and kind of give you the playbook and hear all the things that you gotta do. We have all kinds of playbooks. We've done enough deals where we know kinda how to address all these different situations. I think what we try to do is understand the strengths and weaknesses of the businesses that we're acquiring or partnering with, and then and then, you know, kinda share with them the playbook of, if this is an area where you really need to focus on, you know, we we know how to do this. We can come in and help you do that, give you the support you need so that we can make this as smooth a transition as possible. But the things that we're trying to stay local are things that are you know, that happen locally within these organizations. So it's things like, you know, relationships, you know, customer relationships, and those should stay local. You know, dispatching, estimating, project management, all those things should stay local, but there's an opportunity to take a bunch of stuff off the plate of the owner. I mean, one of the downsides of being successful in this industry or, you know, in in any kind of, route based or or service based organization is that the owner becomes overly burdened with things that they don't really enjoy doing. So banking, bonding, insurance, vehicle management, taxes. Like, these are things that don't need to be local. They can all be pulled out of the business, and they can be managed much more efficiently, you know, outside of the business. And it also frees up the owner to do a lot of the things that they love doing, which is kinda working with customers or developing the field and just solving complex problems. That's that's what they love doing. That's why they got into the industry. That's what, you know, got them got them interested. It's not all about dollars and cents for these folks when when when they're successful. So yeah. I mean, you know, and and just the the main point is that we're not trying to come in and tell people how to run their business. We wanna provide them with, you know, enough support so their business can grow and thrive, and we can just kinda get out of the way and figure out where we can help them to support them, so that, you know, we can we can get to that, you know, that that optimal, place that that that really they wanna get to and maybe haven't been able to figure out really how to get there. Sure. Makes makes sense here, Bill. Caleb, for for you, and then we can transition over to q and a here. Can you talk about your, call it, first hundred or ninety day agenda, right, post closing? How you how you think about integration in that context here? I think Bill so I think Bill hit on a lot of great points, and we think about it sim similarly. So I'll I'll call it some highlights. So one is I think a thoughtful buyer in that first ninety days should have a proposal on a plan, but it should be worked through with the owner. If they just say, hey. Here's a ninety day plan, and it it matches every other company that they partner with, I don't think that's a great approach. I think it needs to be strategized with the owner and the sellers pre close. They they the buyer should have proposals, but it to me, it'd be more of a red flag if it's one size fits all based on all the other companies or if the owner isn't consulted in that that process. I think that's an important step there. I think the first ninety day plan should also, hey. Here are the the the must haves, and then here are the nice to haves or the ways we can offer value if your company wants and team wants to engage with it. I think in the first ninety day plan too, that there should be a good clear cadence on meeting, whether it's weekly or biweekly, just to be in close touch in the early phases. And I definitely think there should be some on-site time from someone on the buyer's team to build those relationships, be a face, from from the new owner, and and spend time learning the business. So we we definitely emphasize in person time. I think that's an important part to the early integration phases. The things in the first ninety days we probably view as critical is like, okay. Let's stand up a proper, job costing and percent of completion or project based accounting. Most buyers like ourselves and others will will have certain, like, third party report reporting requirements that that need that. We also look at a lot of the legal administration, tax, insurance stuff, try to check the boxes on those things in the first ninety days to take some work off of the team's plate. And then something that we do, that I think is important in the early the first ninety days is start getting into some of the people side things. So we start to immediately work with the owner if they're planning to retire on succession planning. We We start to immediately work with the owner in those first ninety days on who are the neck who's the next generation that you want us to help develop. I think that side of it's critical as as well. Thank you, Caleb. Appreciate it. Why don't we just, turn to questions here from the audience? We we have received a number of questions here, so I'll I'll I'll fill them in. Alright? Starting with, with the following question, and this is maybe for, for Premistar here in Goodsprings. Although, Caleb, you you you may might wanna chime in as well. What is the smallest size HVAC company that either you, Rob, or or Bill, or or Caleb look at when considering acquisition target? Yeah. So we I mean, we have two different ways of thinking about it. It's platform companies, and what that means is a business that has enough size and scale to kinda independently operate on its own. And those businesses, you know, typically are somewhere between 2 to $5,000,000 in profitability, which typically translates to 10 or $20,000,000 revenue. And then there's tuck ins. Tuck ins are, you know, businesses that are in markets that we're already operating in, and and those can go as small as two men in a truck. Right? I think what we're looking for are opportunities for, you know, the one plus one to equal three, meaning that if you're two men in a truck and you've got some great relationships that you just can't offer a full suite, but you also have no way of transitioning the business either to, you know, children that you have or, you know, your partner doesn't wanna take the business. There's a lot of opportunity for us to kinda work together. We can buy your business. We can find a a good landing spot for you as the owner of the business, and a solution to go to go forward. But in a in a market where we're going into that we're not in and it's a new market to us, the business has to have enough size and scale that it can operate independently because we don't just have people sitting around, you know, to to descend, in and parachute in and, and run these businesses. So we need to make sure that there's enough scale there that we have something to work with that we can then figure out how do we support you to to grow it to something larger. Rob, do you wanna briefly touch upon that? Sure. I mean, we we use the same terminology as Bill does at PremiseStar between platform businesses and add ons for the portfolio. We typically start around 8 to 10,000,000 of EBITDA for platform businesses which are sizable enough for us to put you know a significant piece of equity to work out of the fund which is roughly 570,000,000 so we have to have to be able to turn the dial, on the on the platform acquisitions. For the the add ons, those can be you know anywhere from kind of 2 to 5,000,000 of EBITDA, Kimbell and Falaska both both entertain M and A of that size. The thing for us really less about size is more it has to be highly strategic and there have to be tangible synergies in the business, so we don't like to kind of talk about synergies at a high level, we want to go and look at what are real purchasing synergies, what are the opportunities for us to to really grow the business and supercharge it if we own it underneath one of the platforms too. Is there a service are not able to provide? Can we cross sell to the customer base? So less about size, more about real strategic importance to the platform. Caitlin, do you wanna just touch upon that and then can move on to the next question? Yeah. So we we partner with 11 companies, throughout The US. The sizes have been from 500 k in profitability to about $77,000,000 in profitability. So we we cover a wide range of partnerships based on proximity to our other companies and based on depth of the team. So it it it can vary widely just like Bill and and Rob highlighted. Sure. Sure. Maybe a question for you here, Bill. What is really the the single most useful action, alright, that an HVAC owner should take, alright, in the next twelve months, let's say, if if they were to contemplate a sale down the line? I'm talking improve optionality or transaction readiness. Just give us your thought on that. Yeah. There's two things that I I think about. One is to make sure that the owner really understands what they wanna do. Right? Like, what is the actual motivation for doing this? Because I I think one of the questions that we sort of skipped that I had prepared for was this whole idea of a strategic versus a financial buyer. And I think a lot of owners go into a process not really thinking about that. And to the extent that they have an adviser, the adviser will tell them about it, and they really haven't properly thought about it. But I think a year before you're gonna get into a process, you really have to figure out what it is that you want. Aside from that, I you know, it's all around the financials. Right? People think that you send over three years of monthly p and l's or profit and loss statements, and and that's all we need to to figure out what the valuation should be. But in fact, it's when you look at that revenue line, it you really need to pull it apart and understand it a lot more. So to the extent that that owners are closing their books on a monthly basis and they have a work in progress whip schedule that's being, you know, shut down on a monthly basis, discussed between their finance person, you know, it's either a CFO or a controller, and their project managers that are running these projects and have a really good handle on what percentage of completion, accounting is. You know, that is the most important thing that you can get familiar with as an owner. If you don't know what it is, like, I'd start now. And if you do know what it is, I would I would really consult with somebody, you know, whether that's a banker or, you know, other accountants that are familiar with construction accounting about what it is, why it matters, how it factors into, you know, the way we'll we'll sit down and and do a quality of earnings before we come up with, not before we come with evaluation, but before we validate whatever evaluation we came up with. We're gonna use a quality of earnings that goes through that whole process. And if you haven't prepared for it, you know, frankly, we're gonna have to cobble it together so it's not it's gonna create risk for us, and, it's not gonna be, it's not gonna be as accurate if you had been doing it all along, and your organization has processes in place to nail it down every month. Yeah. Now I I wholeheartedly agree with you. Caleb, I mean, how early should should an owner really begin preparing, really, for sale process in retrospect? I think it start yeah. I think it starts several years before you're you you set that target date of wanting to find a partner or transition. I I do think kinda thinking through that three to five year window beforehand, it allows time for some of that ability to, you know, implement percent of completion accounting like improper construction accounting like Bill highlighted. It it allows you the time to start, and one thing that I think is important in the planning process is start moving the pieces on your team in place. How how can you potentially reduce some of your role? How can you create, you know, opportunity for the number two, number three, number four of the company to expand their their role with a a future partner? I think it takes several years. It doesn't necessarily require that, but if you're thinking really putting together a robust package for a potential buyer, it's a big lift. It's a big effort. Running the business and going through the sale process at the same time is challenging. And so the more upfront work that can be done around that, I I think the better. Makes makes a lot of sense. We'll cover two more questions here, and then we'll, we'll wrap this up. Rob, question for you. There's a question here. I'm, I'm reading out loud here. Where is the current HVAC m and a market in its valuation life cycle, and where do you see valuations trending over the next three to five years? Yeah. I mean, I think I think what we're seeing is a very healthy valuation environment for HVAC. It also depends on the quality of the business, and the quality of the management team that's bringing it to market. One of the things I'd I'd add, you know, to the to the conversation we just went over, which I think dovetails in is one thing I would be focused on as an owner thinking about a sale is what's the growth story not just for this next chapter but the following one because as a private equity buyer I'm just sitting from my seat you know we we would invest in the business and for a whole period of five to seven years in our minds we're also thinking about what's the next buyer going to be looking at in terms of the next runway. So you really got to be thinking kind of two chapters ahead when you're thinking about that that first exit. I think there there remains a ton of fragmentation in the HVAC market both on the commercial and the residential side still and I think you're I think you're seeing smaller businesses achieve valuations that I think a couple years ago they they hadn't necessarily thought were possible, just based on on some of the multiples that are being printed. I think it's a long runway for growth though and I think I don't I don't see any any sort of real hurdles of that the sort of elevated valuations continuing because I think there's still there's still a lot of ripe you know, consolidation out there and there's some great tailwinds in terms of residential and commercial demand for HVAC services. So, all depends have a little market here. and? growth. potential though. So Yep. Yeah. No. Agreed. Agreed. One last question maybe for you for you, Bill. How deep do you guys get with your portfolio companies for implementation or improvement of processes, including providing them with experts? Yeah. I mean, so we have a whole dedicated integration team, that starts working with the seller, you know, a month before we're gonna close. And then we have a very kind of detailed process where they're gonna show up, and we where they're gonna show up on-site for at least a ninety day period. And and what we're trying to get ourselves to is aside from all the, you know, things that are local versus nonlocal that we've talked about before, we're trying to get them to a place where there's a a transformation plan that's put in place. And what that means is, k, we're not just, like, connecting wires so the business can operate anymore. Now we're starting to implement what are the strategic things that we need to do to grow the business. So have you underinvested in your salespeople? You know, like, do do you not have a way of identifying, you know, field? And, like, what is your strategy around the field? Do you bring a certain number of apprentices every year and kind of what is the what is the plan there and how should you think about it? You know, we can help you with that. So there are experts throughout our business. We're large business people who have been in the industry for, you know, twenty, thirty years, that have been doing this. And so, yeah, we will provide experts when we identify an area where you really need expertise, you know, where where you where you sort of raise your hand and work with that transformation team to say, this is an area where there's a huge opportunity. We should go after it. Like, okay. Well, let's put the right, you know, team around it, the right support around it so that we can help you take advantage of that and grow it. Fantastic. Well, Caleb, Rob, Bill, thank you so much again for taking the time here to participate in this panel. Love your practical perspectives here. And thank you again everyone for, joining the the webinar. Arlene, I think we are pretty much done here with the webinar. Awesome. Thanks, Alfredo. Thank you to all of our speakers, and thank you everyone for attending today's webinar. If you have not already completed it, we have launched our survey located in the survey panel. Thank you again, and have a great rest of your day. Thanks, Thanks, everybody. everyone. Thanks for having us, Alberto. Thanks, everyone. Pleasure. Thank you.