Successful entrepreneurship requires a proper assessment of supply and demand in the relevant marketplace. It is a business owner’s dream to be selling cold beverages on a hot day with limited competition. No entrepreneur wants to be selling children’s Halloween costumers on November 1.
A mergers & acquisitions marketplace with currently strong buyer demand is the one related to the purchase & sale of service trade companies in the plumbing, heating, air conditioning, and electrical industries in the Pacific Northwest. The reasons this marketplace is currently robust include the following factors:
Labor
The unemployment rate in the Pacific Northwest is presently very low. The labor market is even tighter for people with knowledge & experience in the service trades. Ask yourself, when was the last time you heard of a person in their twenties becoming a plumber or electrician. If you know of someone with this type of aptitude, wonderful opportunities exist to be mentored and professionally position for a career with excellent compensation with no risk of being replaced with a virtual replacement or being outsourced overseas. This opportunity was highlighted in the October issue of Entrepreneur magazine (https://www.entrepreneur.com/article/339978) with a story highlighting how Vinnie Sposari, owner of the Seattle franchise of Mr. Rooter, innovatively hosts biweekly career nights at his company to educate potential employees on the financial & professional opportunities that exist in the plumbing trade. This labor shortage also creates a positive dynamic for business owners wishing to sell companies in the service trade industries as one method to problem solve through staff acquisition issues is to obtain staff through business acquisition. It has been my experience as a twenty-five year mergers & acquisitions professional that there is not a better way to gain experienced, knowledgeable, and professionally skilled staff than by acquiring a company with those individuals already on the payroll. In the electrical trade, this can include acquiring individuals who already possess an electrical administrator’s license.
Market Share
Increased market share can be obtained organically through marketing and business development or through acquisition of competition. It is often difficult and expensive to take market share organically from established companies with good reputations and customer loyalty. Comparatively, increased market share through company acquisition can occur quickly and result in an immediate return on investment out of cash flow for the acquiring company. IBA witnessed this successful growth by acquisition strategy directly in the HVAC industry recently when it facilitated the acquisition of G&S Heating, Cooling, & Electric (https://www.gsheating.com/) in Everett, Washington, a business commonly regarded as one of the premier HVAC companies serving Snohomish County, by MM Comfort Systems (https://www.mmcomfortsystems.com/). MM Comfort systems successfully positioned itself in the mergers & acquisitions marketplace through tactful negotiations in a competitive environment with multiple interested buyers to use the platform to become instantly a significant player in the quickly growing Everett metropolitan area and its surrounding communities. Roger Thompson, owner of G&S Heating, Cooling, & Electric achieved a strong market value for his company and created a desired exit pathway to retirement on his terms personally benefiting from the “seller” market environment in his industry. The deal was a “win-win” transaction from all perspectives, a goal for all IBA negotiated business sales.
Reoccurring Revenue
Reoccurring revenue is a very attractive for parties interested in acquiring businesses. Reoccurring revenue is a common occurrence in the service trades. Reoccurring revenue can take the form of established accounts like existed when IBA sold Ventmasters (https://www.ventmasters.net/), a company that serviced ventilation systems in apartments buildings & condominiums on a regular, contracted basis, or through lead generating affiliation marketing programs. For example, many big box chains have single vendor relationships with contractual relationships to work with one company. This exists at Costco where exclusive deals exist for members related to the purchase of Lennox products (https://www.costco.com/Lennox-Heating-and-Air-Conditioning-Systems.product.11753308.html) creating an incentive to buy a new furnace or air conditioner. Each Costco store has a contractual relationship with one local company to serve this demand. Once established, it is difficult for competition to displace the company serving a specific store. Frequently, the only way to obtain a coveted relationship with Costco to serve their customers at a specific store is to acquire the company with the existing contract creating another motivation for acquisition in this marketplace.
Online Presence
In 2019, many customers looking for plumbing, HVAC, or electrical service go online to find a service provider. Organic and Pay-Per-Click (PPC) real estate online can be expensive to obtain for companies in the service trades. One method of obtaining established online real estate is to acquire competition with the presence. The acquisition can also reduce PPC expense by lowering price per click bidding in a specific space.
Population Growth
Population growth is good for service trade companies serving both commercial & residential markets. The population of Washington has grown by slightly under a million people in the last decade (https://www.usnews.com/news/best-states/washington/articles/2019-06-28/washington-states-population-tops-75-million). This has resulted in the need for more housing and commercial buildings with electrical, plumbing, and HVAC systems throughout the state. Each of these systems once installed will require future maintenance and modifications. Plans for residential & commercial construction projects continue to be permitted and break ground from Bellevue to Vancouver on a regular basis. Oregon has also seen recent population growth including 2017 when the state was the 9th fastest growing state in the nation (https://www.oregonlive.com/business/2017/12/oregon_9th_fastest-growth_stat.html).
The five reasons provided above are some of the main ones driving mergers & acquisitions activity in the service trade industry. Experience, knowledge, and professional skill are the foundation of any successful plumbing, heating, cooling, or electrical company. The same can be said of business brokerage firms. If you are looking to sell a service trade company in 2020, the professionals in IBA’s construction and service trade transaction division would welcome the opportunity to provide an overview of our client services. All information shared with IBA is held in strict confidence. 100% of IBA’s fees are paid upon performance at the completion of a transaction.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.