B2B Plumbing versus Residential

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by a searcher from University of Virginia-Darden - Darden School of Business
in Walla Walla, WA 99362, USA

2yrs ago

B2B Plumbing versus Residential

I'm exploring a deal that is B2B Plumbing and Mechanical. Very well run. Projects are large (often multi-million dollar projects) so revenue and profitability is a bit bouncy, but strong relationships with contractors and a preferred sub-contractor in the region. This doesn't have the typical service component with recurring revenue. How have others thought about that cash flow profile? Is it worth less as a result? Too risky? Hard to leverage? What should I be concerned about? Would appreciate thoughts from others.

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reply by a searcher 2yrs ago
from Simon Fraser University in Ontario, Canada

Very good points from Brent and Mike above. Although both pertain to plumbing, a residential plumbing company could not be more different from a commercial new construction company. Building on what they have already mentioned, I would also add:

-Seasonality, depending on the weather profile in your region.

-Often cyclical, with competition potentially being very tough in some markets, especially during downturns.

-Exposure to price escalation for materials and equipment (consider bidding on a project now and finishing it in two years).

-Depending on the type of projects you focus on, it can be extremely technical.

-Expect months when your working capital is double your annual EBITDA, again depending on the project type.

-Not reliant on sales and marketing.

However, if the business is solid, has a good reputation, significant size, and reliable staff, all the items above can act as a moat, making the business very resilient.

reply by a searcher 1yr ago
from The University of Michigan in Ann Arbor, MI, USA

While many of the concerns that have been raised are valid, you will spend much less time doing a lot of quotes if you were in the residential services space which may also be saturated in many markets and you will have more predictable cash flow outlook.