Would Love to See More Searchers Interested in Skilled Trades
November 18, 2022
by an investor from Western Washington University in Key West, FL 33040, USA
In general, I believe there is a huge shortage of skilled trades people. Electricians, plumbers, HVAC, etc. This WSJ article is the perfect example. As a searcher, I think you'd want to look for one with a heavy service component, but much of the install/replacement work that these companies do is not overly economically sensitive either (if you have a plumbing, electrical, HVAC issue, etc. you've generally got to get it fixed ASAP!). Plenty of opportunity to scale and consolidate these fragmented industries - whether you consolidate a small region/city or something larger - via organic growth, marketing, and/or acquisitions. Because of the shortage of workers and high demand, margins can generally be very strong for a well-run operation. I think a lot of searches get scared off from these trades because they don't have the trade experience themselves and they don't know how to solve the licensing issue. However, both of these issues can be overcome. The knowledge can and will be gained, and the licensing issue can be overcome with proper structuring of the deal until you or someone else can get the necessary licensing. Would love to back/invest in more searchers in this area! Feel free to reach out to me: redacted style='text-decoration:underline;' target='_blank' href='https://www.wsj.com/articles/generacs-generator-sales-hurt-by-lack-of-installers###-###-#### ?mod=hp_lista_pos4'>https://www.wsj.com/articles/generacs-generator-sales-hurt-by-lack-of-installers###-###-#### ?mod=hp_lista_pos4
from University of Pennsylvania in Portland, OR, USA
1) While they may enjoy wearing worn Carhartt and talking about power tools, they are sophisticated business owners and run their operations with better use of data than I've seen in major corporations. Information from their CRMs (usually ServiceTitan) integrates across the entire customer journey from the Google ad all the way through a customer satisfaction score and discussions about KPIs and dashboards are frequent.
2) They are well-aware of the roll-up opportunities, have seen the rising multiples in this space, and have a strong knowledge of the size and health of all the other companies in our region. It's unlikely that a healthy, small shop would even come on the market before it was bought by a larger, local trades business and integrated into an existing operation.
3) As a group they are highly skeptical of the out-of-industry investors who routinely contact them about selling their businesses. It's a regular commentary at industry events that "everyone wants what we have."
These observations are based on my experience in a major metro area and interacting with the most engaged owners. Perhaps things are different in other markets and at a lower tier of operators. I share these as perspective, not to dissuade any searcher from pursing the trades. Just know that your acquisition targets are well-informed and aren't going to sell cheaply.
from Northwestern University in Chicago, IL, USA
1) Licensing is often solvable, and there is a significant financial return to solving it. In my business I had to get 25+ different licenses in 3 states. The seller gave me a year of runway and 10 months into it I now have 95% of the licenses I need. The remaining 5% can be rented. Or I could just give up that 5% of business. Or sub it out. Many people work unlicensed and take the risk. Point is, there are a lot of options.
Businesses with licensing issues often trade at a discount, which is great. Even better, the licenses make the business more defendable.
2) I agree that finding skilled tradesmen is hard, but at least for electricians it’s not impossible. It has already gotten easier since 6 months ago because construction slowed down. Local IBEW unions near me are now reporting 10%+ unemployment and I know it’s higher than that elsewhere in the US. It will get worse as the fed continues to tighten. So as president, spend a third of your time on recruiting and make sure you’re paying in the top quartile and you’ll be able to find people.