Axial’s Take – Plumbing & HVAC Millionaires [from WSJ]

A recent Wall Street Journal article highlighted a rising trend of millionaires emerging from skilled trades like plumbing and HVAC, driven in part by increasing interest from private equity buyers. 

The WSJ piece discusses how private equity firms are rapidly acquiring small home-service companies, including HVAC, plumbing, and electrical businesses, offering lucrative payouts to owners and consolidating the industry. 

We’ve seen some similar trends on Axial. Below is a graph of the number of new buyers that have joined the Axial platform since 2019, with plumbing & HVAC as one of their industries of focus.

New Axial Buyers Interested in Plumbing & HVAC

Between 2020 and 2023, we saw a 550% increase in the annual run rate of buyers interested in plumbing & HVAC joining the Axial platform – a CAGR of about 65% within this period. 2023 seems to have been the recent height of this craze, as we’ve seen growth flatten between this year and last. 

As we looked into this data more, we were curious to see how interest in Plumbing & HVAC across different buyer types has trended over time. We honed in on financial investors and broke buyer types into two groups:

• Group 1: “Institutional Investors”
  Private Equity Firms & Family Offices (Typically 2 – 20 Employees)
• Group 2: “Boutique Investors”
  Fundless Sponsors, Search Funds, and Individual Investors (Typically 1 – 5 Employees)

New HVAC & Plumbing Interested Buyers by Financial Buyer Type

From 2019 – 2023, boutique investment firms like independent sponsors and search funds started to dominate the buyer landscape in these sectors. As these types of firms increased in prominence during this period, HVAC & Plumbing deals were an obvious focus area for a few likely reasons:

1. Attractive Valuations: according to IBIS World, there are over 110,000 Heating & Air-Conditioning Contractors in the U.S. For new & smaller firms, this level of market fragmentation allows boutiques to find companies that other buyers aren’t speaking with. As smaller, less capital-flush firms, this provides opportunities to acquire businesses at lower purchase prices.
2. Stable Investments: Skilled trade businesses offer attractive investment opportunities due to their steady demand, recession-resistant nature, and high service and repair margins.

But it wasn’t too long before private equity caught on. 

The percentage of private equity firms joining Axial with an interest in these sectors jumped from 8% of all new buyers in 2023 to 23% of all new buyers in 2024. 

As the WSJ article remarks, competition has intensified. PE firms have started to come down-market. They’ve found a host of attractive roll-up opportunities within services businesses in fragmented industries like plumbing & HVAC. 

So what should buyers do about the increased competition in the space?

As buyer competition increases within these sectors, differentiated deal-sourcing strategies become more critical. Buyers that don’t have an edge in their investment theses or resourcing strategy (data, technology, outsourced support, interns, etc) will increasingly find it difficult to find great companies at fair valuations. 

Some buyers are turning to Axial as one of these resources. While Axial is growing in prominence for buyers in the SMB / lower middle market space, so too are the number of deals – 10,000 deals came to market on the platform last year, the majority falling within the $500K – $5M EBITDA range. 

With that volume of deals, buyers are able to use Axial’s Buyside Project tool to source targeted deal flow within their differentiated strategies – such as targeting companies in less trafficked places like Western Canada, Montana, Idaho, North Dakota, and Nebraska.

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So what does this mean for Plumbing & HVAC business owners?

As these sectors become of greater interest to a larger swath of buyers, the exit opportunities for business owners in the space grow with it. This means two things for owners who might be contemplating a sale:

• Higher Valuations: With a well-run M&A process, more buyers means that a business can attract more competition for their business, thereby increasing the sale price.
  
• The Perfect Fit: As the number of interested buyers in the space increases, the likelihood of finding the perfect steward increases as well.  

If you’re an owner who’s been thinking about evaluating their exit options, now might be the right time to become well-educated on the process and key considerations. 

One of the best things you can do is to start by speaking with an M&A advisor who is well-versed in working with owners in the space. 

Axial’s Advisor Finder program can help you find the right ones.

Learn More About Advisor Finder