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Acquiring HVac Business

crzy2bealive

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All,

My brother in law has an opportunity to purchase an already existing HVac business due to the current owners wife being diagnose with cancer.

This business is located in Dallas/Fort Worth. I have already provided him feedback on what he needs to ask the current owner and what else he needs to consider.

Any tips or advice from any of the RDP business owners out there.

This could be something I might help manage and grow in the next year also as he has told me he would need help with marketing, managing, and growing the business.

-Robert
 

c_land

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Look at everything and don't be afraid to walk away. Few big ones i have learned in getting burned on a couple previous acquisitions:

- Don't allow the price to be structured on multiples of revenue, should be EBITDA
- Talk to current customers and their opinions of staff if you're retaining them
- If large enough, Look at their IT infrastructure as it is an expensive item if it is completely outdated
 

RandyH

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Buy assets only. And the name. Don't buy the whole company. unless you know its super clean of all outstanding liabilities. Did they have Claims made or Occurance based General Liability insurance for the last 7 years.? Are you going to take over an existing pension or Profit sharing plan. Is it fully funded? Ask yourself why is he selling it if his wife has cancer? Why isn't he keeping it. Is she on the company insurance? is there a group health insurance policy in place? you might consider offering an asset only value opening offer. If he liquidates it, what is he going to get for it?? Buying it for asset value will be a lot less than ? x EBITDA. Does it even make money? What percent of thier business comes from Repeat customers? Are they a dealer right now for any major brands? will those contracts carry over if there is a new owner. Most contracts will not. sorry if this comes off negative.
 

HotRod82

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Having sold 2 HVAC businesses, I would caution your brother in law regarding retaining clients. At a minimum he needs a non-compete agreement barring the previous owner from owning or participating in the HVAC business. RandyH's post above has several good points.
Outstanding liabilities, contract rollover, and an audited set of financials are really important. If this is a small residential shop, I would buy his phone number and his client list, nothing else.
As a general rule, small service based businesses are worth very little.
 

jeteater1

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All,

My brother in law has an opportunity to purchase an already existing HVac business due to the current owners wife being diagnose with cancer.

This business is located in Dallas/Fort Worth. I have already provided him feedback on what he needs to ask the current owner and what else he needs to consider.

Any tips or advice from any of the RDP business owners out there.

This could be something I might help manage and grow in the next year also as he has told me he would need help with marketing, managing, and growing the business.

-Robert


I'm looking at one in Colorado , my accountant is looking over the last ten years or their operation. Should know by next week.
 

crzy2bealive

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Thanks for all the responses so far.

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crzy2bealive

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Having sold 2 HVAC businesses, I would caution your brother in law regarding retaining clients. At a minimum he needs a non-compete agreement barring the previous owner from owning or participating in the HVAC business. RandyH's post above has several good points.
Outstanding liabilities, contract rollover, and an audited set of financials are really important. If this is a small residential shop, I would buy his phone number and his client list, nothing else.
As a general rule, small service based businesses are worth very little.
Touching base on the non-compete agreement. What would be the reason for that? Is there a fear he would want to start another one again and take back his clients?

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Done-it-again

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Touching base on the non-compete agreement. What would be the reason for that? Is there a fear he would want to start another one again and take back his clients?

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Absolutely. Making money from you buying his old company and opens new shop with current vendors. Nothing stops for him, business as usual. But he just made a but load of cash from you.
 

crzy2bealive

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Absolutely. Making money from you buying his old company and opens new shop with current vendors. Nothing stops for him, business as usual. But he just made a but load of cash from you.
Gotcha, luckily he is on board with signing one.



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Flying_Lavey

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Touching base on the non-compete agreement. What would be the reason for that? Is there a fear he would want to start another one again and take back his clients?

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Precisely. Service businesses are all about reputation and name. Not just the business name, but the people running it. Customers get to know they and will be loyal to the people over the company name given the opportunity. So, don't allow him the opportunity


From someone being in the trade for a good while now and doing many disciplines of it, I would suggest to look at employee retention and length of tenures for the employees. Don't want to spend a bunch of money buying a company and have no field labor that is competent enough to do their jobs. I'm assuming your brother has experience in the trade? If so, I'd suggest he try to talk to a couple of the employees to try to asses some of their technical skills sets. Also, how big is the company and how is the management structure arranged?

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OldSchoolBoats

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Absolutely. Making money from you buying his old company and opens new shop with current vendors. Nothing stops for him, business as usual. But he just made a but load of cash from you.
Not to mention if the sale involves assuming any outstanding liabilities too.

I have never looked at purchasing a service related business so not sure of the standards, but a 2 year NCA is what I would want, at the minimum.

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HotRod82

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Touching base on the non-compete agreement. What would be the reason for that? Is there a fear he would want to start another one again and take back his clients?

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Exactly what others have said.....people are known for selling one shop then opening another. The HVAC biz is very incestuous, everyone knows everybody....same people running different shops over the years. I've been sued and have sued over IP, and trade secrets involving clients. Nobody wins usually, turns out clients don't like being drug through court. lol.

All kidding aside, the HVAC biz is a great one to be in. It's tough, but what business isn't? I survived 25 years in it, most of those years being self employed and I was never out of work. I wish you guys the best of luck!
 

crzy2bealive

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Precisely. Service businesses are all about reputation and name. Not just the business name, but the people running it. Customers get to know they and will be loyal to the people over the company name given the opportunity. So, don't allow him the opportunity


From someone being in the trade for a good while now and doing many disciplines of it, I would suggest to look at employee retention and length of tenures for the employees. Don't want to spend a bunch of money buying a company and have no field labor that is competent enough to do their jobs. I'm assuming your brother has experience in the trade? If so, I'd suggest he try to talk to a couple of the employees to try to asses some of their technical skills sets. Also, how big is the company and how is the management structure arranged?

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Has 10+ years of experience in this trade.

6 years has been with this company.Not much of a management structure.
Field tech to owner. I'll talk to him about the confidence and trust he has with the other guys.

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Tooms22

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- Due diligence on the liability side of things
- Have they been sued? How many times? For what? Any expected new lawsuits?
- How do their corp books look? Are they a mess?
- Tax returns and balance sheets (audited financials if possible)
- Employees? Are they staying?
- Non-compete for as long as they'll agree to, at least within the current service area
- Non-solicitation of current customers (owner gets around the non-compete by having someone else start a biz and he grabs all of his old customers)
- Loyal, consistent customers. Are they going to stay? Are there strong agreements in place? Goes back to non-compete
- Vendor contracts. When do they end? Are they legit contracts? termination provisions?


Basically I would look for anything that could be coming down the pipeline as a liability (Lawsuits, unknown partners, fudged financial data)
 

Done-it-again

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Not to mention if the sale involves assuming any outstanding liabilities too.

I have never looked at purchasing a service related business so not sure of the standards, but a 2 year NCA is what I would want, at the minimum.

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Good thing the company is in Texas. Non compete doesn’t mean squat in CA.
 

lakemadness

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Get yourself an attorney and accountant that specialize in acquisitions. If you’re not willing to foot that bill or don’t have the funds to then I would recommend passing. You could easily have a solid 5 figure legal bill quickly. You’ll get fucked, or at minimum lose out on securing the best and most secure structure as far as taxes and liability go. Get it right from the start. Kind of like pay now or pay a lot later...


I just went through this. Legal counsel is very valuable. There’s a long list of items you and the seller will never think about that could and very likely will effect many things.

How are you financing? Seller financing or bank loan?

I’ve been on both sides, seller and buyer. It can be a complicated endeavor that could be a life changing event for the better or worse. Seek good counsel.
 

jeteater1

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I can't wait for the one i'm looking at . Once my accountant is done the deal will go to my lawyer, fingers crossed.
 

HotRod82

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Good thing the company is in Texas. Non compete doesn’t mean squat in CA.

The trick is you have to spell out specifically that the previous owner will not participate in any way in the HVAC business, and you have to attach a specific dollar amount to it in the event he does. This way you have a contract, not just a non-compete. If he breaches the contract, you can sue for damages which is what I did. I won a judgement against a crook I was in business with, I never saw any money but I drove him out of business and into bankruptcy. He lost everything including his marriage.
 

crzy2bealive

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We are moving forward with getting a layer and an accountant. I will be flying out to Texas shortly.

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