For most of their history the residential trades were a business nobody wanted to institutionalise. Margins were real but unglamorous, growth was capped by how many trucks an owner could supervise, and the buyer at the end was almost always a competitor down the road or a child who had grown up in the shop.
Then the arithmetic was noticed. A well-run HVAC contractor generates recurring service revenue, prices in a market with no serious substitute, and sits in a fragmented sector where a buyer can pay six times earnings for a single company and be valued at eleven for the collection. That spread has drawn several billion dollars into a corner of the economy that had never been priced by anyone with a spreadsheet.
The multiple was the easy part
The acquisition model works exactly as described. Buy the region's better contractors, consolidate the back office, put the branches on shared software and route optimisation, cross-sell service agreements, and the combined entity produces margins the individual shops could not. Every part of that is achievable and much of it has been achieved.
The part the model underweights is that a trades business is a roster of technicians who can leave on a Friday and be working elsewhere on Monday. The skill is portable, the licence belongs to the person, and demand exceeds supply in every metropolitan area in the country. A consolidation that changes dispatch, compensation structure and who a technician answers to can lose the productive third of a workforce in a quarter, and the acquired revenue leaves with them.
Sellers have noticed what their businesses are worth, which is the more durable change. An owner who assumed for thirty years that the exit was a handshake at book value now receives unsolicited offers at a multiple of earnings, and the offers have reset expectations across the broader wave of retiring owners putting Main Street up for sale. Even owners who never sell now price their business differently, and negotiate differently when they do.
That repricing has made the alternatives competitive in a way they were not. Employee ownership structures suddenly compete on economics rather than sentiment, because a seller comparing offers is comparing after-tax proceeds against a buyer who will still be in town, and the gap has narrowed enough for the second consideration to matter.
The second wave now entering is buying at prices set by the first wave's results rather than its thesis, which is a harder trade, and one that industrial distribution has already run through to its late innings. Entry multiples in the better metros have roughly doubled, the obvious targets are taken, and the remaining sellers are the ones who declined the first offer. Returns from here depend on operating improvement rather than multiple arbitrage, and operating improvement in a business where the asset drives home every night is a slower discipline than the fund life assumes.
What happens to the customer is still open. The consolidated operators genuinely deliver faster dispatch, real financing and a warranty that survives the owner's retirement. They also introduce standardised pricing books and call-centre triage into a business that ran on the relationship with one person, and that trade will get argued in every neighborhood the model reaches.
Topics businesssuccession
