How PE Is Rolling Up HVAC Service Companies

Lucas: When a summer heat wave hits and your air conditioner dies at three in the afternoon on a Friday, you don't price-shop - you call whoever can be there in two hours. Luna: Right, and that's exactly why private equity has been circling the HVAC industry like a hawk all decade. Lucas: Today we're looking at a specific deal that shows the playbook: Summit Equity Partners' acquisition of CoolRite Services, based in Charlotte, North Carolina, for about $240 million. Luna: If today's conversation helps you see these rollups coming - whether you're an investor or a homeowner - that's the whole point.

This show stays ad-free because listeners chip in at buy me a coffee dot com slash fexingo. It's a small way to say you found it useful. Lucas: Appreciate that. So CoolRite was a regional player - about 400 trucks, serving residential and light commercial across the Southeast, with a heavy base of maintenance contracts.

Lucas: Summit didn't buy it for the air conditioner installs. They bought it for the recurring service agreements - that's the annuity that makes HVAC a better PE target than, say, construction. Luna: So how does the math work on a $240 million deal like that? What kind of revenue and margin are we talking?

Lucas: CoolRite was doing about $180 million in revenue with EBITDA margins around 15 percent - so roughly $27 million of EBITDA. Summit paid about 8.9 times EBITDA, which is in line with mid-market service rollups. Lucas: The thesis is: buy at nine times, improve margins by consolidating back office - dispatch, billing, call centers - bring them to 20 percent, and sell in five years at 11 or 12 times.

That's a double on equity even without revenue growth. Luna: But revenue growth is part of it too, right? They're not just cutting costs. Lucas: Exactly.

The buy-and-build model means Summit uses CoolRite as a platform. They go acquire smaller shops - say, a ten-truck operation in Greenville, South Carolina, that does $5 million in revenue - and fold it into the same CRM, same routing software, same brand. Lucas: Those little shops have been run by owners who did everything themselves. The PE firm brings operational discipline and marketing spend that the mom and pop could never afford.

Luna: I've seen some critics say this just drives up prices for homeowners - that once the local guy gets bought, the tune-up that was $99 becomes $169. Lucas: It's a fair concern. The data is mixed. A 2024 study from the University of Chicago's Booth School looked at pe owned HVAC companies in Texas and found prices on service calls increased about 12 percent over three years, compared to independents.

Lucas: But they also found faster response times and lower rates of no-shows. So you pay more, but you get more reliability. Whether that trade-off is worth it depends on your perspective. Luna: And there's the labor piece.

The trades are facing a massive retirement wave. A lot of these small shops have one master technician who's sixty-two years old and no succession plan. Lucas: That's the hidden gem for PE. Summit doesn't just buy the customer list - they buy the certified technician workforce.

And they can invest in training programs that a solo operator can't. Lucas: Summit launched what they call the 'CoolRite Academy' - a six-month paid apprenticeship that feeds directly into their fleet. They're essentially solving their own labor shortage through vertical investment. Luna: That does sound positive, but I wonder - do those apprentices end up making more than they would at an independent shop?

Or are they just cheaper labor for the PE firm? Lucas: From what I've seen, starting pay is comparable - about 22 to 25 dollars an hour. But the pe owned shops often offer better benefits and a clearer promotion path because they have scale. Lucas: The independent guy might max out at journeyman with no room above.

In a consolidated firm, you can become a crew lead, a trainer, a regional service manager. That career ladder matters for retention. Luna: So what's the endgame for Summit? They hold CoolRite for five to seven years, then sell to a larger PE firm or maybe a strategic buyer like a utility or a home warranty company?

Lucas: Most likely a larger PE platform. There are firms now building national HVAC consolidators - think Service Experts-type scale. The big targets eventually become public or get bought by infrastructure funds that love the predictable cash flow. Lucas: CoolRite is actually Summit's third HVAC platform.

Their first one, AirCore, they sold in 2023 to a Canadian pension fund for a reported 14 times EBITDA. That's the kind of exit that keeps the capital flowing. Luna: Fourteen times from a nine-times purchase - that's a massive win. But it also means the next buyer is paying for that multiple expansion.

At some point, the air conditioning service itself has to justify the valuation. Lucas: And that's the risk. If interest rates stay higher for longer - which they have, we're sitting here in mid-2026 with the ten-year Treasury around 4.7 percent - then the cost of leverage eats into returns.

Lucas: PE firms have been paying higher multiples for service businesses because there's so much dry powder. But the math only works if you can actually improve operations and grow EBITDA faster than the multiple shrinks on exit. Luna: Is there any sign that the HVAC roll-up wave is peaking? Or are we still in the early innings?

Lucas: Still early. The industry has about 130,000 HVAC companies in the US, and the top 50 hold maybe 15 percent market share. Compare that to, say, waste management, where the top three control over 50 percent. Lucas: There's a long runway of fragmentation to consolidate.

But the easy targets - the ones with clean books and willing sellers - are getting picked off. The next wave will be trickier: owners who are healthy, profitable, but not ready to sell. Luna: That's where the earnout structures come in. A seller stays on for three years, gets paid again if revenue targets hit.

It's a way to get reluctant owners to exit while retaining their knowledge. Lucas: Exactly. And the smart PE firms are building dedicated integration teams - they don't just send a spreadsheet. They have former HVAC operators on payroll to help the acquired shops transition without losing the local service culture.

Lucas: Because if a customer calls and gets a robot and a four-hour window after the rollup, they'll switch to the independent down the street. The brand equity is fragile. Luna: So the big question for a listener who runs a small HVAC shop - should they sell now or hold out? Lucas: If you're over fifty-five and have no clear successor, selling now is probably the smartest financial decision.

Valuations are high, and the tax environment is favorable under the current capital gains rates. Lucas: If you're younger and want to keep operating, you can still sell a majority stake to a PE firm and roll your equity into the platform. That way you get liquidity and keep running the business with institutional backing. Luna: It's essentially becoming a partial owner of a bigger machine rather than the sole owner of a small one.

Lucas: That transition from entrepreneur to manager-capitalist is uncomfortable for some. But the ones who make it well end up with a more valuable, more durable business. Lucas: Summit's first HVAC exit, the AirCore sale, made millionaires out of half a dozen original owners who stayed through the integration. That story gets told in every pitch meeting now.

Luna: It's a compelling case study. And it shows that PE in HVAC isn't just financial engineering - there's real operational value being built, at least in the good deals. Lucas: For every deal that works, there are probably two that don't. But the overall trend is clear: the air conditioner repairman of the future will likely work for a private equity backed regional chain, not a sole proprietor.

Luna: And as long as summers keep getting hotter, the demand side isn't going anywhere. Lucas: No risk of that reversing. I'll take a well-capitalized HVAC fleet over a speculative biotech any day.