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HVAC Businesses (residential/commercial service)
The 3 anchors. Don't leave the meeting without them.
Open the meeting
Three things to nail in the first 10 minutes.
- 1
HVAC businesses average 2.75x SDE, but recurring-heavy operations with 40%+ service agreement revenue hit 5x+.
- 2
PE roll-ups are paying 8x–10x EBITDA for PE platform targets — if you're at $1M+ EBITDA, that conversation is real.
- 3
The difference between 3x and 5x SDE is usually one thing: what percentage of revenue is recurring service agreements.
Mid-meeting — structure the deal
Three things to confirm before talking terms.
- 1
SBA 7(a) eligible — strong category for lenders; expect 10–20% down on typical deals.
- 2
Seller note size depends on deal structure — on SBA, expect ~5% on full standby per current 2025 rules (optional second note 5–10% with payment terms on top); on non-SBA it can run 10–50%+ of the price. Common; earnouts tied to service agreement retention are used in PE add-on deals.
- 3
License transfer is critical — verify the master HVAC license is held by an employee, not just the owner, before listing.
Close the meeting — surface the landmines
Three deal-killers to flag now, not at LOI.
- 1
Owner is Sole Licensed Tech
Seller holds the master HVAC license personally with no licensed W-2 employees. — Identify a licensed employee or arrange for a qualifying tech before listing; without this, SBA lenders will not approve.
- 2
No Recurring Service Agreements
Business is 100% install-only with no maintenance contract revenue. — Advise seller to launch a service agreement program; price at lower end of range (2.5x SDE) if no recurring revenue exists.
- 3
License Held Personally by Seller
The state contractor license is personal and cannot be assigned to the business entity. — Research state-specific license transfer requirements; structure a minimum 90-day post-close employment agreement if transfer is not immediate.
All value drivers6
- Recurring maintenance/service agreement revenue (40%+ pushes multiple up 0.5x–1.0x)
- Strong commercial book with documented contracts
- Trained technician retention and non-owner license holders
- ServiceTitan or FieldEdge field service management software
- Low owner-dependency with operational playbook
- Geographic density attractive to PE roll-up platform
All deal killers5
- Owner is sole licensed tech / key-man dependency
- No recurring service agreements — install-only revenue model
- License non-transferable or held personally by seller
- Deferred fleet or equipment maintenance inherited by buyer
- No documented processes; tribal knowledge business
Industry-specific discovery questions5
- What % of revenue is recurring maintenance/service agreement contracts?
- How many billable techs are W-2 employees vs. 1099 subs — and who holds the master license?
- What is the repair-vs-install revenue mix and gross margin by segment?
- What field service software do you use (ServiceTitan, FieldEdge, etc.) and how complete is the data?
- What is your average ticket size, customer retention rate, and geographic service radius?
Universal discovery questions12
- What's prompting the sale — retirement, partnership dispute, health, or new opportunity?
- What's your timeline to close, and what's flexible about it?
- Have you spoken with other brokers? Any signed engagement letters?
- What number do you have in your head for the business?
- Walk me through the last three years of revenue and the trend.
- What does your owner compensation actually look like — salary, distributions, perks?
- Who else needs to sign off on a sale? Spouse, partners, lender, landlord, franchisor?
- Day-to-day, what's your role versus your team's?
- Top three customers — what % of revenue do they represent?
- Lease, own, or family-owned real estate? Term remaining and rent vs market?
- Any pending litigation, tax issues, environmental concerns, or regulatory inspections?
- If I bring you a qualified buyer at your number in your timeline, are you ready to sign a listing today?
SDE quality questions9
- Cash basis or accrual? Reviewed or audited financials?
- What add-backs are you assuming — owner salary, family on payroll, personal vehicles, travel?
- Any related-party transactions or below-market lease from a family-owned LLC?
- Working capital today — receivables, inventory, accrued payroll, deferred revenue?
- How would you respond to a Quality of Earnings analysis on the last 24 months?
- Any one-time revenue or expense items in the last 24 months we should normalize?
- How long would you stay post-close for transition — 30, 60, 90 days, or longer?
- Are you open to carrying a seller note? Size depends on the deal — SBA caps the standby portion at ~5% (with an optional second note for 5–10% on payment terms), non-SBA can run anywhere from 10% up to 50%+ of the price.
- On the seller note, what interest rate and term are you targeting? Market is 6–10% interest, 3–7 year amortization — actual number depends on lender, deal size, and risk profile.
Live rebuttals — when they push back5
- They say
“I'm the only licensed technician — doesn't that make me worth more?”
You sayIt actually makes the deal harder, not more valuable. Buyers and lenders need the license to stay with the business. If we can get a licensed employee on payroll, your value goes up significantly.
- They say
“My service agreement revenue is only 25% — does that matter?”
You sayIt matters a lot. Going from 25% to 40% recurring revenue is worth half a turn on the multiple. Even 6–12 months of focused contract-building before listing could be worth $100K+ in value.
- They say
“A PE company reached out — should I just sell to them directly?”
You sayPE companies are smart buyers, and they'll negotiate. Running a competitive process with multiple buyers — including PE — typically yields a better outcome than a direct negotiation.
- They say
“I have a backlog — that should bump my price up, right?”
You sayOnly if it's signed contracts with documented margin. Verbal pipeline doesn't move the multiple. Let's pull the signed agreements and confirm gross profit before we price it in — buyers will ask for the same in QoE.
- They say
“I work 70 hours a week — buyers should pay for the hustle.”
You sayIt's the opposite. The Stratford Analytics 4,712-deal database shows working-owner businesses sell at a 47% discount. Buyers pay for transferable systems, not your hours. Cutting your hours below 40 before listing is worth six figures.
All deal-killer flags (full detail)4
- Owner is Sole Licensed Tech
Trigger: Seller holds the master HVAC license personally with no licensed W-2 employees.
Action: Identify a licensed employee or arrange for a qualifying tech before listing; without this, SBA lenders will not approve.
- No Recurring Service Agreements
Trigger: Business is 100% install-only with no maintenance contract revenue.
Action: Advise seller to launch a service agreement program; price at lower end of range (2.5x SDE) if no recurring revenue exists.
- License Held Personally by Seller
Trigger: The state contractor license is personal and cannot be assigned to the business entity.
Action: Research state-specific license transfer requirements; structure a minimum 90-day post-close employment agreement if transfer is not immediate.
- Owner-Captive Operation
Trigger: Owner works 60+ hrs/week, holds all customer relationships personally, no #2 in place.
Action: Run the Legacy Diagnostic before listing. Pre-sale fixes (promote a #2, document SOPs, transition top customers) typically recover 0.5–1.5x of multiple in 90–180 days.
Sources4
- https://firstpagesage.com/business/hvac-ebitda-valuation-multiples/
- https://www.capstonepartners.com/insights/report-hvac-services-market-update/
- https://homeservicesbusinessvaluation.com/hvac-business-valuation
- https://exitlabhvac.com/blog/how-private-equity-is-changing-the-hvac-industry-and-what-it-means-for-your-business
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