HVAC Plumbing company valuation
February 13, 2024
by a searcher from Cornell University in Philadelphia, PA, USA
Does anyone have a good valuation model for an HVAC/Plumbing company. Particularly interested in how to treat the value of partially depreciated equipment, vans/trucks with loans against them, and real estate (warehouse/offices). First time putting together a valuation for this type of business so just trying to get some best practices in building out the valuation model. Thanks.
from Ivey Business School at Western University in Calgary, AB, Canada
We do our deals cash free debt free and would consider the loans as debt (that gets repaid ahead of equity but doesn't change the purchase price). We tend to see these business as asset light relative to other businesses and so we don't get too bogged down in purchase price adjustments based on asset depreciation as in our experience they have been immaterial relative to the purchase price, though I can imagine a scenario where this isnt the case and I think I'd try to adjust the purchase price to reflect mid-cycle asset depreciation if needed.
from University of Pennsylvania in Jersey City, NJ, USA
+ Large share of subscription revenue (30%+)
+ Large market share (however the market is defined)
+ Demonstration of low costs of customer acquisition (i.e., lifetime value vs costs of acquisition via SEO, etc)
+ Broader portfolio of products (ability to source from multiple manufacturers)
Ascribe a discount to residential new construction-driven revenue given its cyclicality/limited potential for recurring revenue.
To Mark's point, if the assets in the business support the daily running of the business, there typically aren't adjustments made for those given those are used in the "ordinary course" of business.
If for whatever reason, the business has excess inventory (e.g., they overordered HVAC units due to COVID supply anticipated challenges) there could be a shout for allocating some value to that over and above the ongoing value of the business.