Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:

1. Why does private equity love HVAC so much?
   ​
2. A unique approach to company building
   ​
3. A playbook for Montessori school rollups

Do you run multiple businesses? As you know, I do...which means I have too many bank accounts we need to check every day. Before I started using Vesto, it was a headache for my team to check those accounts daily.

Vesto made it easy to connect all of our banks into one simple dashboard. With real-time balances, transactions, and cash flow monitoring – we went from 50 account logins to one.

For any company managing multiple banks, Vesto is a no-brainer.

​Check out Vesto here​

(Vesto is sponsoring today's newsletter, thank you)

Private equity loves the HVAC business.

Two years ago, Blackstone finalized a $14 billion acquisition of an HVAC business.

And that's not the first big PE acquisitions of an HVAC business over the last few years. The industry has been on fire. Here are a few other notable deals:

• Alpine Investors has rolled up over 200 HVAC and plumbing companies into its Apex platform, generating $2.2 billion in combined revenue in the past year (fun fact, I sold a business to this platform).
• In 2022, TSG and Oak Hill invested into The Wrench Group alongside Leonard Green
• Hidden Harbor Capital Partners have been rolling up companies in their HVAC platform. Check out my interview with their founding partner John Caple on their acquisition strategy.

Why does PE love HVAC so much? Here are a few reasons:

• Fragmented market structure: There were over 145,000 HVAC-related companies in the US as of 2023. It's a $50 billion annual market, there's a large opportunity to roll up smaller players.
• Growing market: Projections vary wildly, but everyone agrees that the HVAC industry will continue to grow in the United States over the coming decade. The labor is hard/impossible to replace with AI, and faster population growth in the south creates more demand for cooling systems & servicing. According to PE Hub, over 70% of HVAC acquisitions they covered from 2020 to 2023 were in the south. Also, climate change anyone? When I grew up in Northern California, nobody talked about HVAC. Now many homes are installing in for the hot summers.
• Labor dynamics: The demand for HVAC services continues to grow, but there is a shortfall of labor. This gives HVAC companies pricing power, the perfect setup for private equity.
• Cross-selling opportunity. Many of these PE rollups are combining HVAC with other home services. Apex, mentioned above, is buying up HVAC servicers, plumbers, and electrical contracting companies. Some buyers are aiming to win certain markets by offering every service a homeowner might need.

In short, HVAC is a safe, stable industry with thousands of acquisition targets. It's become cliche on X at this point, but private equity is modernizing the industry by adding software to scale old-school businesses,

But not all HVAC is created equal. Apex, mentioned above, focuses on commercials. By having a nationwide network of commercial only HVAC companies, they can also have nationwide selling teams who can serve big accounts. A company like Car Max, Costco, of Safeway doesn't want to deal with dozens of small groups. They may prefer locking in one discounted and reliable service with Apex.

Other PE players prefer residential HVAC because you can sell yearly maintenance memberships, and upsell new units at higher margins to a less sophisticated consumer.

What are some of the downsides?

My friend Chris (who runs a 9-figure home service business and will be speaking at our annual summit in May), mentioned this deal that is going bankrupt...one PE shop paid 20x EBITDA...and lost hundreds of millions.

​

Chris Hoffmann @STLChrisH One private equity group just lost $460 million in their latest HVAC platform acquisition. Everyone touts the wins. No one publicly acknowledges the raging dumpster fires. Paid 20x on $28M of EBITDA. Roughly 2 years later: Down to $5M of EBITDA. The lesson? It is NOT easy. 8:29 AM • Feb 17, 2025 40 Retweets 1101 Likes Read 167 replies

​

To stay on the safe side of history, if you're a newer buyer, the key lessons in this sector are:

• don't overpay. Assume the business will falter for a little while
• more importantly, don't take too much debt. Debt will kill your business if things go south
• be cautious of keyman risk. If 1 or 2 people are key to the business then you're buying into a risky situation
• avoid construction businesses. An HVAC construction and HVAC service business are priced very differently. You want the latter
• don't buy too small. I recommend at least $1M of EBITDA preferably a bit more for a home service business. At that scale you have some layers of management and brand, and you're not just buying a truck

🔑 He's sold 3 companies (and rolled up schools)

Last week I talked to a guy who has a unique approach to business building.

Esteban Reyes is both a successful entrepreneur, and investors.

Esteban goes deep on a roll-up of Montessori schools. He shares specific details of how the deal was capitalized, and the incredible success they created through this strategy. I HIGHLY recommend you listen to this one.

​Watch it here​

​Listen on Spotify​

​Listen on Apple Podcasts​

🔑 Reader feedback

This week I decided to hold off on my weekly "interesting deal". If you're getting value from these, send me an email to let me know and maybe I'll bring it back in the coming weeks! (you can just reply to this email, I read all the replies).

Have a great week,

Sieva

P.S. - Are you hiring? Get started with top global talent from Somewhere (I'm a customer and investor)

What did you think of today's newsletter? Rate this newsletter using the poll below:

​

Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

​

​

​​

​