Originally published as a featured column in the March/April 2026 Issue of Indoor Comfort Marketing.
More Buyers, Better Options: Rethinking the HVAC & Fuels Exit
After a memorably frigid winter drove record earnings across much of the country, a familiar question is resurfacing for fuels and HVAC business owners: Is now the time to sell? Some owners will decide to cash out at the top of the cycle. Others will use their newly filled coffers to recommit to the business despite industry regulatory pressure, labor challenges and higher costs. Regardless of your mindset, what is clear is that today’s buyer landscape looks quite different than it did a decade ago.
Traditional buyers such as cross-town rivals, large strategic acquirers and private equity firms are now joined by independent sponsors, family offices and other high-net-worth individuals who are targeting lower middle market businesses. In addition to complicating the acquisition landscape, an expanded pool of buyers also brings a wider range of transaction structures and outcomes that are often not yet appreciated by owners in the fuels and HVAC space.
Private Capital Explosion
The massive increase of private capital over the past decade as traditional lending standards have tightened has pushed financial buyers deeper into fragmented industries like distributed fuels and HVAC. Not only has this accelerated the deal-making in many segments of our industry, it is now driving an expanded menu of exit options for business owners – not just at the end of their career, but at all stages. While a meaningful segment of founders and owners will seek to maximize the headline price of their business as they approach retirement, others will prioritize the protection of the legacy in the community and fair treatment of their employees – assuming, of course, the valuation feels fair. Increasingly, however, a third category of sellers is emerging: owners who want liquidity and upside.
Tax planning, participation in future growth, access to capital and access to operational resources are now central to many exit conversations. Recognizing that industry fragmentation, widening buyer demand, and their own hard-earned business relationships can be leveraged to accelerate growth before a full exit, savvy owners are often beginning these strategic financial discussions years before retirement.
Rollover Equity: Owning A Meaningful Piece of a Bigger Pie
Unlike buyers focused primarily on post-transaction cost cutting or headcount reduction, many financial buyers place a premium on continuity. They value the owner’s relationships, market knowledge and leadership and seek to keep this expertise in place after closing. To entice this continued relationship, buyers frequently give the seller the option to reinvest, or “roll,” a portion of their sale proceeds into equity of the buyer’s newly formed holding company. While rollover equity has historically been less common in fuels and HVAC than in other sectors, that is changing quickly. M&A data firm GF Data reports that 63.6% of middle market deals (broadly) in 2024 included rollover equity. Many transaction advisors we speak to anecdotally place the frequency closer to 50% across the lower middle market segment.
For sellers, rollover equity presents a second opportunity for wealth creation. By retaining an ownership stake, sellers participate in the future growth of a business that now benefits from greater capital, expanded management resources, and an acquisition-driven growth strategy. Just as importantly, sellers can often defer taxes on the rolled portion of the sale proceeds. In some cases, the equity may qualify as Qualified Small Business Stock (QSBS) under Section 1202 of the tax code, potentially allowing significant future capital gains to be realized tax-free if requirements are met.
Buyers benefit as well. Rollover equity aligns the seller’s interest with the buyer’s desire for improved long-term performance. Further, it can help bridge valuation gaps and may reduce the amount of necessary outside capital required to close the transaction. It is also common for the seller to continue earning a salary or other performance-based compensation as a result of their continued involvement with the business, making this structure particularly attractive to owners who are mid-career or not ready to fully step away.
The amount of continuing equity in the acquired business differs from deal to deal but rollover stakes typically fall in the range of 20% to 40%, depending on the deal dynamics and the parties’ objectives.
A Matter of Preference and Timing
Taking the last dollar at closing will always make sense for some sellers, especially those ready to fully embrace retirement. For owners with years or decades left in their careers, however, minority ownership can unlock many of the same benefits historically enjoyed only by large acquirers such as scale, follow-on capital access and shared risk. Through rollover equity, Sellers can potentially reap additional proceeds that meet or exceed their original transaction payday.
Understanding a buyer’s investment horizon is critical. Independent sponsors and family offices often take a longer, more flexible view, while private equity buyers may operate under a shorter defined timeline to grow and exit the business. Aligning with a buyer that understands the unique dynamics of fuels and HVAC while also matching your desired career timeline can mean the difference between a productive partnership and a frustrating one.
As always, owners should work closely with legal and tax advisors to understand rollover mechanics, Qualified Small Business Stock eligibility, minority protections and governance rights.
A business sale no longer requires an “all or nothing” decision. For owners who still see career and opportunity runway ahead, today’s buyer landscape offers a chance to take meaningful dollars off the table while staying invested in what comes next. Exploring these options early before your retirement is upon you is the single best way to turn a strong exit into a lasting benefit for you and your family.
Jeff Simpson is the founder and managing member of Notch Capital, a private investment firm specializing in buyouts and recapitalizations of lower middle market businesses in the heating, cooling and home services industries. Notch Capital also provides advisory services to help these businesses strengthen their performance and analyze acquisitions.