The Blubber

If you live in a major metro area, you’ve likely seen service trucks driving by that have recently changed ownership. Private equity (PE) investors have acquired nearly 800 HVAC, plumbing, and electrical companies since 2022, according to PitchBook data. And that’s just for the larger deals—many smaller acquisitions go untracked, as sellers often don’t disclose details about their PE payouts.

"Everyone and their uncle owns an HVAC business in private equity today," says Adam Hanover, chairman of Redwood Services. The PE-backed home-services company purchased Aaron Rice's business in 2022 and merged it with Rite Way, a larger Tucson-based HVAC company Redwood had acquired the year before.

Over the past four years, Redwood has acquired 35 companies, ranging from smaller businesses like Rice’s, which it buys for an average of $1 million, to larger companies like Rite Way, valued around $20 million, where it takes majority stakes.

The skilled trades have long offered solid wages for workers without college degrees and provided entrepreneurial opportunities for those with bigger ambitions. Rice, who co-founded his plumbing business in 2012 after battling addiction and spending time in prison, specialized in sewer inspections and repairs. His company employed 18 people and generated about $3 million in annual revenue.

Though Rice and his partner Mike Nagal hadn’t planned to sell, they liked that their business would become part of a local company like Rite Way and that Redwood allowed them to retain a stake and continue influencing management. Rice now manages Rite Way’s sewer department and plans to stay until retirement in seven years. Nagal also remains with the company.

“I want to hunt, fish, drink beer, and cook meat,” Rice said about his retirement plans.

For PE investors, the strategy of consolidating businesses to create larger players has been used in industries like carwashes and nursing homes. By adding management expertise, improving back-office operations, and increasing marketing and recruiting efforts, these firms aim to boost margins. Critics argue that the PE model can lead to higher prices and less competition, but others say it can improve service quality and financial performance.

Rite Way’s new ownership has proven successful. Since joining Redwood, the company’s annual revenue has more than doubled, from $30 million to around $70 million. The company has expanded beyond HVAC into plumbing and electrical services, added more service trucks, increased staffing, launched an apprenticeship program, and provided more sales training. Redwood also brought in accountants to closely monitor the company's financials.

Small-business owners often struggle to handle multiple tasks or keep their prices updated, says Richard Lewis, Redwood Services’ CEO. Redwood reviews its pricing quarterly to stay aligned with market trends. As costs rise, they are passed on to customers, says Lewis.

For Rick Walter, Rite Way’s former owner, the sale relieved some of the stress of running a business. Walter, 67, retains a 25% stake and remains president but plans to retire soon and enjoy time at a vacation home purchased with the proceeds of the sale.

"Running this business was 60 to 70 hours a week for years," Walter said. "I’d be out selling heating and cooling systems until late at night, and my wife supported me the whole time."

A decade ago, most small-business owners in the skilled trades wanted to sell and retire, says Ted Polk, managing director at Capstone Partners, a Boston-based investment banking firm. Today, more want to stay involved and grow their businesses. Around a third are entrepreneurs looking for ways to expand.

"They realize what they can do alone is only a fraction of what they could achieve with backing," Polk says. "Next thing you know, you’re running an empire."

Workers also benefit financially. Graham Weaver, founder of Alpine Investors, a San Francisco-based PE firm, says that HVAC technicians at businesses acquired by Alpine typically see a 20% pay increase in their first year, thanks to higher wages, bonuses, and commissions. Alpine has consolidated over 200 companies across 43 states into a larger platform, Apex, which generated $2.2 billion in revenue last year.