From nearing retirement to moving to a new area, there are numerous reasons why you may decide to sell your HVAC company. Regardless of the purpose, deciding to sell is a big decision. This review discusses how you can sell an HVAC business for optimal value and without any headache. We also discuss how working with a business broker such as Sigma Mergers and Acquisition can help you throughout the process.
About The HVAC Industry
The HVAC industry has performed well over the past five years, and it remains a valuable business type moving forward. This is largely due to its resistance to economic downturns and recessions. Additionally, there have been more acquisitions and sales of HVAC businesses in recent years. In particular, there has been a trend of larger HVAC companies purchasing small and mid-sized companies. This is happening more because acquiring smaller contractors has proven more effective in increasing market share than advertising. The HVAC industry also continues to grow annually. Below are several key HVAC industry stats, which display its market size and growth:
- There are approximately 125,000 HVAC contractors in the U.S.
- There was a 2.7% annual growth for the HVAC industry from 2017 to 2022
- The HVAC industry generated $122.9 billion in revenue in 2022
- The annual profit for the HVAC industry is $5.4B
- Experts predict a slight decline in annual growth (-0.1%) from 2022 to 2027, due to increasing interest rates and a decline in new construction properties
How to Determine The Value of Your HVAC Company
A business valuation provides a monetary range of your HVAC company’s worth. A business broker may use a range of factors and valuation models to determine the value of your company. These factors notably include but are far from limited to your annual earnings, net sales, geographic location, and the amount and condition of your equipment. Of course, you should also look beyond financial reports and tax returns to determine the value of your HVAC company. For instance, you should also consider your competitive advantage, reputation within the community, growth potential, and more that can be hard to fit into a financial report.
Key Sales Metrics for The HVAC Industry
The good news is company values within the HVAC industry are trending up due to increased demand and a lack of licensed HVAC professionals (both for new construction and repair and replacement services). Here are several key industry sales metrics to consider when determining if you should sell your company.
- HVAC companies sold between 1.84 to 3.94 times the Seller’s Discretionary Earnings (SDE)
- HVAC companies sold between .41 to .55 times the annual net sales
- HVAC companies sold between 2.73 and 4.57 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
The above valuation multiples are calculated medians that are updated annually by Business Reference Guide. HVAC companies that generated under $1 million in net sales trended toward the lower range, whereas those who generated more than $5 million in sales were toward the higher range of the multiples. Of course, and as mentioned, there are many additional considerations that are factored into a business valuation, some of which go beyond what a financial report can provide.
Keep in mind, only a qualified and experienced business broker can provide you with an accurate estimation of your HVAC company’s value. These metrics and trends should only serve as a general guide and approximation of how much your company is worth if you were to bring it to market.
How The Sales Process Works for An HVAC Company
Every sale is unique. However, there is a general process that you can follow to ensure a successful sale of your HVAC company for optimal value. These steps include consultation with an expert, a business valuation, marketing your company, reviewing offers, choosing a buyer, due diligence, and finalizing the sale.
Step 1: Consult With an Expert
Selling your HVAC company without professional help can be like pulling teeth, and you are more likely to receive (and accept) an offer below your market value. Instead, we recommend consulting with a reputable business broker that has experience within your industry. They can provide you with a reliable and personalized business valuation and handle all complexities that are involved with marketing, receiving offers, and finalizing sales.
Step 2: Receive a Business Valuation
Certain metrics play an integral role in determining the business valuation for an HVAC company, such as the SDE and EBITDA. However, formulating your business valuation should go beyond simply looking at numbers. Instead, it should also include an assessment of your competitive advantage and what makes your company unique. This is often something that does not show up on financial reports.
Step 3: Bring Your Business to Market
Your business broker should provide reliable valuations that allow you (and possibly your partners) to make an informed decision as to whether or not it is time to sell your HVAC company. Additionally, confidentiality is of the utmost importance if you choose to sell. This is why a business broker is incredibly valuable. They can ensure you can sell discretely. They also understand how to market your business effectively (as well as discretely) and find qualified buyers.
Step 4: Review Your Offers and Choose The Right Buyer
Consider all factors that are important to you when selecting the right buyer. For example, beyond the financial element of the sale, you may want to choose a buyer who continues your vision and keeps your employees. As you receive offers, you (and your business broker) should review the offers and manage the process to avoid any unseen problems or setbacks.
Step 5: Complete The Due Diligence Process
Due diligence is the time after you receive a letter of intent to purchase your HVAC company and before the purchase agreement is signed. As the seller, your goal is to move through this process as swiftly as possible. To do so, we recommend you have all documents prepared ahead of time. You should also have a set timeline for each stage of the due diligence process. This helps prevent the process from dragging on longer than necessary and allows you to move toward the purchase agreement faster.
Step 6: Confirm The Transaction and Finalize The Sale
After you secure a buyer and complete the due diligence process, you, along with your business broker, attorney, CPA, etc., should take certain steps to ensure a smooth and successful sale. Following these steps can also reduce the time between due diligence and selling your HVAC company. Notably, this step should include:
- Review documents
- Attain final signatures
- Confirm the payment is sent
Is It The Right Time to Sell My HVAC Business?
Good HVAC contractors are seeing reliable and steady growth and sustainability. Heating is essential, and quality air conditioning is incredibly valuable for most households and commercial establishments. For this reason, the HVAC industry is thriving at a time when many other industries are not due to the recent economic downturn.
Additionally, the HVAC industry has grown substantially in the past five years, but it is projected to stagnate or even shrink over the next five years. Consequently, now is the right time to sell for many HVAC business owners. Of course, every company is unique. Ultimately, the best way to determine if you should sell now or in the future is to consult with a professional business broker that specializes in sales and acquisitions.
Contact The Professional Business Brokers at Sigma Mergers and Acquisitions
Here at Sigma Mergers and Acquisitions, we pride ourselves in helping HVAC company owners throughout the sales process, from determining your value to finalizing the sale. If you are considering selling your HVAC company, we encourage you to schedule a consultation at a convenient time. We are glad to provide you with more information and help you decide if now is the right time to sell (or if you should wait).
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!