We Are Transforming Professional Utility Services
And Making Things Brighter.
Why Utility Service Companies?
Complexity Moat / Competitive Advantage
We think there is a built-in moat in the commercial plumbing and HVAC sectors. Commercial services are less crowded than residential services because commercial jobs are more complex. On average, commercial jobs have slightly lower margins than residential jobs. The commercial side makes up for this with (1) the ability to secure large and stable contracts that make scaling revenue and profits easier in many cases, and (2) less competition and fewer entrants into the commercial space because the work is more complex, requires special know-how and a reputable track record to land stable contracts from large companies.
Low P/E Ratio & Less Competition from Investors
Relative to the large supply of baby boomers looking to exit, there are few entities on the demand side of the equation. This leaves us with an opportunity. We know this is the case because smaller private equity firms have just started to invest in utility service companies. We understand the importance of price when deciding to invest. Warren Buffett has long said, “This is the cornerstone of our investment philosophy: Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.” No one can argue with that.
High Returns on
Utility service companies generally have high returns on capital invested in the business. Commercial plumbing and HVAC only require an office, small shop to store tools and equipment (very minimal), and work trucks. Our acquisitions prioritize efficient spending on new assets versus our peers. There is a lot less capital required to run a utility service company versus a car manufacturer. The less capital we have to invest on large machinery and equipment, the easier it is for us to profitably grow revenues. We think this offers equity investors a huge opportunity.
Plumbing and HVAC are historically recession resistant. Plumbing, heating, and cooling will be the last thing Americans will give up before food in a deep recession. Moreover, part of our strategy is to diversify our revenue as much as possible to prepare for recessions (for ex., with ongoing commercial maintenance and residential contracts that are less elastic than new commercial projects).
Did you know an estimated 10,000 baby boomers are retiring each day? With baby boomer business owners now reaching retirement age, there’s a plethora motivated sellers – some of whom we’re most likely negotiating with right now. Our strategy is to cherrypick the utility service companies with great track records and sound growth prospects (if the price is right).
We can use the SBA or commercial debt to prudently leverage transactions and increase investor ROI (today, the cost of debt is much cheaper than equity). Our access to low-cost debt financing is growing as we prove ourselves as operators. Banks are looking, more now than ever before, for good operators to entrust with loans.