Sectors
Buying an HVAC business, and how lenders look at it
Heating, ventilation, air conditioning and refrigeration businesses look like plant and vans to a lender that has never funded one. The vans are worth almost nothing. What you are buying is a maintenance book and the engineers who service it.
What you are actually buying
A book of planned maintenance, and the reactive work it drags behind it
An HVAC business usually earns from three quite different things, and they are worth very different money:
- Planned preventative maintenance. Contracted visits at agreed intervals, usually annual or quarterly, often on rolling terms. This is the asset. It is predictable, it renews, and it is what a lender will lend against.
- Reactive callouts and repairs. Higher margin and genuinely valuable, but it exists because the maintenance contract puts you in the building. It follows the contracts rather than standing on its own.
- Installation and project work. Lumpy, competitive, and dependent on winning the next job. A business that is mostly install is a contracting business, and it is valued and funded like one.
So the first question on any HVAC purchase is the split. Two businesses with identical turnover, one seventy per cent maintenance and one seventy per cent install, are not the same asset and will not attract the same funding. Get the split out of the seller in writing before you talk about price.
What carries value
The things that move the number
Contract length and notice
A rolling contract with a one month notice period is worth less than a three year term with a fixed renewal date. Read the actual documents, not the summary schedule.
Renewal history
What proportion of contracts renewed each of the last three years? A book with a long renewal record is close to an annuity. One with heavy churn is a sales operation.
Customer concentration
One large managing agent or a single national account can be half the book. That is not fatal, but it changes the structure and it will change what a lender wants by way of security.
F-gas and qualifications
Refrigeration work needs qualified engineers and the right company certification. If the qualifications sit with one person who is also the seller, you have a problem to solve before completion.
Engineers who stay
In a tight labour market the engineers are harder to replace than the customers. A book you cannot service is not an asset.
Asset register quality
A business that knows what plant is on every site, its age and its service history can price renewals and win them. One that does not is quoting blind every time.
The lender's view
What lenders look at, and what makes them nervous
What gives a lender comfort
- A maintenance schedule that reconciles to the sales ledger, contract by contract.
- Long renewal history on the largest contracts.
- Contracts that survive a change of control without the customer's consent, or where consent is a formality.
- A buyer who already runs an HVAC or building services business and has engineers.
- Plant and vehicles that can carry their own asset finance, freeing the main facility for the goodwill.
What makes a lender nervous
- Revenue that is mostly installation dressed up as recurring.
- Contracts with change of control clauses that let the customer walk on completion.
- Certification or qualifications held personally by the departing owner.
- An order book with retentions and long payment terms, and no facility to fund the gap.
- Warranty and remedial liabilities on past installations that nobody has quantified.
Deal shapes
The structures that actually get funded
Trade buyer bolt-on. An existing building services business buys a maintenance book to add density in a region. The easiest to fund, because there is a trading history to lend against and the engineers can be absorbed. See bolt-on acquisitions.
Management buy-out. The contracts manager and the operations lead buy out the founder. Lenders like the continuity and worry about the funding gap, which is usually bridged with vendor finance and a deferred element.
Asset-light purchase with separate asset finance. The goodwill and the book are bought with a term facility while the vans and plant are funded separately on asset finance. This is often the cheapest overall structure and buyers routinely miss it because they ask one lender for one facility.
Whichever shape, expect a meaningful part of the price to be deferred against contract retention. Read deferred consideration and earn-outs for how lenders treat that money when sizing the facility.
Paperwork
What you will be asked for
- Three years of accounts plus current management figures.
- A contract schedule: customer, site, value, frequency, start date, renewal date, notice period.
- Revenue split between planned maintenance, reactive and installation, for at least two years.
- Renewal and churn history on the maintenance book.
- Copies of the largest contracts, including any change of control clause.
- Engineer list with qualifications, certifications and length of service.
- Company certifications and who holds them.
- Asset register, vehicle list and any existing finance agreements on them.
- Work in progress, retentions and debtor ageing.
The general version is in our document checklist.
Traps
The ones that cost buyers money
Paying a maintenance multiple for installation revenue. The most expensive mistake in the sector. If the split has not been evidenced from the ledger, assume it flatters the seller.
Change of control clauses nobody read. A large contract that terminates on a change of ownership can be the difference between a good deal and a bad one, and it is sitting in the contract file waiting to be found.
Certification that walks out of the door. If the company's certification depends on a named individual who is leaving, the business cannot lawfully do some of its work the day after completion. Resolve it before, not after.
Warranty liabilities on past installations. Work installed before you bought the business can come back to you. Quantify the exposure and deal with it in the agreement.
Underfunding working capital. You inherit the wage bill immediately and the maintenance billing cycle on the seller's terms. Read working capital before you size the facility, not after month three.
Why us on this one
We know who reads a maintenance book properly
The part that is hard to buy is that we know which lenders have funded HVAC maintenance books before and understand that a contract schedule is the asset.
Tell us the split, the renewal history and the shape of the deal. We go to the people who have done this and come back to you with who can fund it and what they will want to see.
We introduce buyers who are acquiring through a limited company or a NewCo. If you are buying personally, as a sole trader or as a partnership, we will point you to an authorised firm directly instead.
Tell us what the maintenance book looks like
Contract count, renewal history and how much of the revenue is reactive. Send us that and the shape of the deal, and we come back to you with the lenders who fund maintenance books.