Consolidation in business terms refers to the combination of two or more different business enterprises or companies into one large organization. Consolidation occurs when companies of the same size or dealing with similar products join into one to streamline their business processes and management.
HVAC and plumbing services form a large industry with an estimated $75 billion market. Services rendered by HVAC and plumbing providers are essential in any commercial or residential building, either during initial installation or maintenance.
In the United States, the HVAC market is roughly a $20 billion industry that is not prone to recession, especially throughout the warmer states of Texas and Florida.
Due to the readily available market, many technicians are investing in the HVAC and plumbing enterprises. Despite the market demand for the services, it is becoming difficult for independent HVAC and plumbing operators to compete with the larger firms.
HVAC and plumbing Consolidation opportunities
In the USA, there are thousands of independent HVAC contractors. As a result, many financial buyers see the opportunity to consolidate independent firms. Consolidation of independent firms helps to create a regional or national presence
HVAC and plumbing contractors might specialize in commercial or residential services.
Independent contractors may focus on new construction, while others focus on servicing existing units that can be viewed as a recurring revenue model.
A firm that has emerged from consolidation may also specialize in HVAC services before diversifying into plumbing services.
Consolidation of HVAC and plumbing providers has advantages when compared to independent providers.
Evolution of HVAC and plumbing providers consolidation
In the early years, HVAC consolidators involved small-scale contractors who agreed to put their companies together and form one company. They would then sell some stock and benefit from the cash. They would then hand over the new company to second-tier managers
Some consolidators evolved the scope of business by focusing on growth through acquisition. This way, they could continue to show Wall Street good revenue and profit numbers. The acquisition masters began offering stock rather than cash for newly acquired companies.
Jim Abrahams remains a key figure in the Plumbing and HVAC industry consolidation. He began as an independent HVAC technician, Invented the Abrahams Best practices concept, and then pioneered HVAC consolidation.
Trends in HVAC consolidation
Private equity nowadays views HVAC as the newest market for consolidation.
An example of a middle-market private equity firm is Alpine investors, who have recently launched a new platform for HVAC contractors called Apex Service. The goal is of Alpine investors is to partner with service providers to build a national platform.
Advantages of consolidating HVAC and plumbing providers
Independent HVAC and plumbing technicians rely on obsolete technology while offering their services, whereas consolidated firms have the latest technology in the market. For example, independent providers rely on handwriting to provide drawings and quotations, which might be illegible, whereas large firms use pads and tablets with inbuilt quotes.
Marketing and advertising strategies
Independent providers rely on conventional advertising media such as TVs and newspapers. Larger firms have adequate resources invested in online advertising. Nowadays, online platforms attract more clients than conventional media.
Larger firms can purchase pieces of equipment in large quantities or enter into agreements directly with the manufacturers, who then sell equipment at discounted prices. On the other hand, independent providers do not enjoy discounts and may pay more, especially if the equipment is rare in the market.
Large firms may organize in-house training for their staff on emerging technology in the HVAC and plumbing sector. Training on advanced equipment for independent technicians may be difficult.
Large firms have staff with diversified specialization. They also train their staff and have better remuneration packages for their staff. The larger firms have a competitive advantage over the independent providers.
There exists a misconception that if an independent plumber or HVAC technician engages in consolidation, they lose control over their business. However, this is not the case since an independent operator can accelerate the growth of their business while keeping their name on the transport trucks. Consolidation enables independent HVAC technicians and plumbers to be run their businesses with better resources.