How the Right Capital Partner Can Help Fuel Distributors and HVAC Companies Scale and Succeed
Accelerating consolidation. Impending environmental regulation. Competitors looting your already thin technician and driver ranks. It’s enough to disrupt more than one night of any business owner’s sleep. But for most fuel distribution and HVAC companies, it is today’s cold reality. A reality that is prompting many to seriously ponder the direction of their companies and their own personal business futures.
After spending the last 15 years serving as a financial advisor to business leaders and as a manager of direct investments in the delivered fuels and HVAC industry, I have witnessed the struggle up close. Many middle market company owners recognize the operational and financial benefits of achieving that elusive “scale” so many seek, but often struggle to do so with a limited set of financial tools and a small management team. Acquirers in the lower middle market have for years pieced together the occasional purchase of smaller competitors using a mix of cash from operations, debt and earnout structures. But when the larger, game-changing opportunities arise these companies are often caught on the outside looking in, once again lamenting the economic might of their larger competitors – those with focused, professional financial backing and a dedicated acquisition team – which scoop up your otherwise perfect opportunity quickly and cleanly.
To many companies in the heating and cooling industry, the limitations placed on them are all too obvious. Often, cash-constrained, bank-constrained, or highly leveraged owners opt to pass on an acquisition bid or, at best, lob in a low-end offer in hopes that interest is light enough that they might back into a win. And for those owners within a stone’s throw of retirement, adding more debt to grow can simply be too large a risk to take. This is not a winning long-term growth strategy.
For business principals looking to scale their operation and best position their company to compete in today’s market, an equity recapitalization or majority sale is a powerful way to achieve their goals while taking some retirement chips off the table. Teaming with a capital partner that understands the industry, can help source new acquisition opportunities and has similar growth objectives can be a smart, strategic and lucrative method of reaching the next level. While not a novel approach in the broader financial markets, such capital alternatives have not traditionally been available to most fuel distribution and HVAC companies due to their size in a largely fragmented industry. That has changed in recent years for many companies.
The right capital provider can not only provide millions of dollars in funding to achieve meaningful growth but will also look to the operating company’s existing management team to help shape the future of the business, influence strategy, grow the management team and participate financially in meaningful growth of the business. From a practical standpoint, this means that business owners who have found growth elusive due to their size can achieve a significant “second bite at the apple” by owning a smaller stake in a much larger company. This is often accompanied by an enormous opportunity for financial gain for those business owners who would otherwise struggle to grow. Companies with access to a steady flow of capital achieve greater scale to benefit from the new technology, broader and more stable staffing, deeper management expertise and more efficient funding arrangements – all while still maintaining the local service and decision making that keeps your customers coming back year after year.
Other industries have seen consolidation firsthand. Those in the know recognize the trends occurring within our own industry. Now is the time for a close examination of your goals, the new capital solutions available and the benefits of achieving scale in a rapidly consolidating market.