Commercial HVAC Valuation

August 29, 2022

by a searcher from Northwestern University - Kellogg School of Management in Redwood City, CA, USA

I am evaluating a commercial HVAC business. It is reasonably decent size ($30M+ revenue, $3.5M to 4M+ EBITDA). No asking price was set. Revenue over the past 5 years is "bouncy" - up, down, up, DOWN (covid), up. No consistent growth###-###-#### revenue will be less than 2018 revenue but more than 2019 revenue.

With regards to valuation, I had an initial call with the broker to gauge the thinking. According to the broker the owner "has in his mind $25M to $30M sales price". Additionally color to their thinking: "no earn outs, seller note might be ok as long as it's short, decent interest rates and has collateral". This translates to a nearly 6X to 7X multiple on EBITDA which seems really out of market. Is anyone else seeing these types of multiples?

My spidey sense is that this owner isn't motivated to sell but is just sticking this out there to see if anyone is crazy enough to buy it at a crazy multiple. But I want to check in to see the market rates for businesses this size.

Reply by a searcher
from Northwestern University in Fort Lauderdale, FL, USA

i am bullish on commercial hvac service. My valuation would depend heavily on level of maintenance agreements, industry of the end customers, and what geography they serve. Commercial hvac has fallen out of favor with banks and investors so multiples are lower than residential. You may need to raise larger % of equity to do this deal and have a clear path to growth for investors to join.

Reply by a searcher
from University of Toronto in Vancouver, BC, Canada

Similar to Joe, this would be service & maintenance vs. new construction, contractual or not. Then would look to attachment work that flows from service & maintenance and could offer a mix of lower multiple for new construction and higher multiple for service work. Talent acquisition is tough, what is turnover like?

+4 more replies.

Join the discussion