In this episode of JackQuisitions, Jack sits down with Patrick Lange of Business Modification Group to unpack what really drives (and drags down) HVAC and plumbing valuations. Patrick has sold 149+ trades companies and shares straight-talk on multiples, owner bottlenecks, service vs. construction mix, and how buyer profiles—and the June SBA SOP changes—are reshaping deals. If you’re eyeing an exit (or your next acquisition), this one’s a masterclass in reality over rumor.
Patrick explains why many $1M-revenue shops get stuck (perfectionist owners doing everything), why “20× multiple” stories are almost always misleading, and what separates a $5–8M exit from a $2–3M fire sale. We dig into geographic effects (why the Southeast—and Tennessee—often trades hotter), price discipline, clean books, and building repeatable systems that survive the owner stepping back.
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Jackquisitions EP 22 Transcript
Patrick Lange: [00:00:00] Every company that I see that's stuck in a million dollars in sales is because the owners are perfectionist when it comes to either plumbing or heating and air. They don't believe anybody can do it as good as they can, and so they're gonna do it all. But if the ultimate goal is to sell your business, you've gotta show a profit,
Jack Carr: as you mentioned, like private equity rolling up things.
And I think that that's caused a lot of expectation that they are going to get five to $8 million.
Patrick Lange: Oh, I just sold my company for a 20 time multi. They're lying. And so I think seller expectations are not realistic. Sometimes I hate to be the bad guy, but I'm not gonna get you $2 million.
Jack Carr: Welcome back to Jack Acquisitions. Today we have, uh, I'm so excited. Uh, Patrick Lang with Business Modification Group. Patrick, how are you doing today? I'm fantastic. I'm so excited to be here, so
Patrick Lange: thank you so much for having me on.
Jack Carr: Patrick, I think I told you this before the episode, but you were one of the first brokers that I've ever reached out to four years ago when I was looking at HVAC businesses.[00:01:00]
And you are, I'm on your, your email list ever since, because. I, I just wanna be notified every time there's a deal. You are the king of HVAC brokering businesses. How many, uh, a year or how many in your lifetime have you sold?
Patrick Lange: Yeah, so, um, we typically do 20 to 25 a year. I've been fortunate, um, as of today, I'll have one close today and I'll be number 1 49.
So 140 deal we've done in six years. Um, this year, business has been. Been has been good. We've, uh, I'd have to look at the number for this year. I, I think we're over 20 already. Um, and we probably have seven more under contract. So, uh, we're, we're excited to be able to work with a lot of people.
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Um, I think I've scraped your website a few times just to, to compare deals and make sure that my multiples are in check and how they're doing and using them as comps. I mean, it, you're just, I'm. If, if the listeners are hearing some, uh, like crackling in my voice, it's 'cause it's, I'm talking to, uh, Patrick Lang, which is a, is a big deal.
Uh, it's a big deal for me. You know, I, you, you, you build these people up, uh, [00:03:00] that you kind of follow. I'm sure people do it to me as well, but you follow online for so many years and then finally you get to meet and talk to. It's an exciting thing. Uh, Patrick. You started off as just HVAC brokering? Correct.
Are you doing HVAC and plumbing or is it just like HVAC companies that have a plumbing side to them?
Patrick Lange: Yeah, you know, so, so we have focused really on HVAC the last six years and, and plumbing's been mixed in with that. Right. And we, a lot of companies are multi trade and so we started doing some multi trade companies and then that switched to just doing plumbing companies, a little bit of electrical.
Probably 90% of what we do is heating and air. Uh, 10% would be plumbing, I would think. Um, and we're seeing that I probably have two plumbing companies listed right now, so we're starting to do more of it. Very similar businesses and industry obviously. Um, and so yeah, the bulk of what we do though is heating and air.
Jack Carr: Awesome. And so there's been a lot of changes in the heating and airspace over the past six years. How, what's your view on [00:04:00] the heating and airspace and plumbing in general, kind of going into the end of 2025, Q4 and then into 2026? What's the market look like right now?
Patrick Lange: You know, the market's still strong.
Mm-hmm. Um, and I think the market. You know, my crystal ball works as well as anybody else's, right? So, um, but, but I think the market will stay strong. You know, it's a relatively recession resistant industry. Obviously we saw COVID, everybody else was shut down in the trades, we're able to keep working. Um, I think, I think heating and air more than plumbing.
You know, you look at downtimes, right? 2005, 2006, going into 2007, the economy kind of shuts down because of a lot of different reasons people. Need air conditioner at this point. Right. At one point in time it was a, it was a. You know, not a necessity. And I think we've spoiled ourselves now that I don't know anybody.
I'm based in Florida, right? I don't know a husband dumb enough to tell his wife in the state of Florida, he's not fixing the air conditioner in the summertime. Uh, obviously in Tennessee, similar, you just a, we were talking today, you're [00:05:00] having good, good heating and air weather. 94.
Jack Carr: Yeah.
Patrick Lange: Yeah, absolutely.
It's great times and, and, and in a few months it's gonna be 20 degrees and I don't know somebody that's gonna say, Hey, we're not gonna fix the heater. So I think, I think it's become more needed. If, if you get a pipe that leaks, most people don't have to be super mechanical. If things are bad, you might be able to fix the pipe from a plumbing standpoint.
Um, but you're not gonna clean out most drains, sewer backups, those kind of things you're not gonna do without. Right. At the end of the day, it's become more of a need than a want. So I, I think, uh. Valuations may change some. And they have even changed over the last six years, I think when I first started selling heating and air, and then we had this spike in private equities gobbling everything up.
Mm-hmm. And, and prices became stupid on some level. Um, and I, and, and in some places they still are what some would consider stupid probably, but we've, we've certainly seen a downturn. Um, in those crazy, crazy valuations, but I think they'll maintain value.
Jack Carr: So that's an interesting point to bring up. So I know a lot of listeners are either buying their first [00:06:00] company or they're buying, you know, add-ons and tuck-ins, uh, including ourselves.
And so we've actually put offers Lois in on three different businesses in the last probably three months, four months. And we've lost all of them, um, mostly because these are sub. $300,000 SD sub, $400,000 businesses that are, that we're trying to trade, or, I mean, they, they have been trading at, uh, five, six x multiple, um, in Nashville.
Uh, is that kind of the norm around the area or what are you seeing? Like is it, is it really geospecific or what's going on with, with multiple compression or expansion?
Patrick Lange: Yeah, I think location has a ton to do with it, right? Um, I list a company in California or New Jersey or New York. There's not as many people moving to California or New Jersey to buy a business, right?
Mm-hmm. It seems the whole world's trying to get to the southeast and, and specifically [00:07:00] Tennessee. I mean, Tennessee is exploded from a population standpoint. And so as a result, I've sold several companies in Tennessee in the last year, and what we've seen. Is, we've had a lot of buyers from the Northeast that have sold companies up there, got big paycheck, pay paychecks, or big pay days, and are now moving south and southeast specifically.
Mm-hmm. And buying those companies. So, so you're seeing a lot more buyer interest than a. If I list a company in potentially the Midwest or Northeast or California or places like that, there's not as much population growth. You're not seeing as high or as multiple demand in those areas. So that, that has a lot to do with it.
I think the, the make it up of the business has a lot to do with it. My guess is you're not looking at construction companies. You're looking at service repair, replacement companies, which everybody's trying to get to. You're in a market that there hasn't been any huge market dominators. Right. And you, you look at where private equity has made big pushes, [00:08:00] um, there hasn't been a ton of, of big brands built.
So they're trying to get there and they're trying to gobble up, so you're competing with them as well. So I think it's a combination of a lot of things.
Jack Carr: Yeah, definitely. Yeah. We, we've seen that in, in the days of, of, you know, 2021 where there was a lot of more three x multiples and two x multiples are, um, at least in this market, are, are somewhat gone, which is unfortunate.
Um, but that being said, whatever makes sense for the business makes sense for the business as a tuck in, you know, we can't overextend, uh, for potentials that growth. Um, whereas other people may try, especially the big, the big players you mentioned like private equity rolling up things. I mean, I think that that's caused a lot of, um, uh, kind of expansion of those multiples is is expectation that they're going to get the PE numbers on the back end, um, even if it's a smaller mom and pop shop.
Yeah.
Patrick Lange: And, and, and I, I look at, I probably look at, I dunno. Three sets of tax returns a [00:09:00] week, maybe of people wanting to list. And we list typically two companies a month. So when you look at the numbers, I look at a lot of people and I either tell them, one, I can't get them what they want, um, or two, their business isn't ready to sell.
And so. So there's this expectation is often here and reality is often here. Part of the, the downside and, and obviously you participate, I'm certain in all the, the trade shows that happen in the area and around the country. And at every one of them, somebody gets up on stage and says, oh, I just sold my company for a 20 time multiple.
Right? And, and one part of 'em, they're lying, right? At the end of the day, they didn't sell it for cash. They, they're having to stay around. They rolled equity. They're financing a portion of it. So what they're saying is not accurate and they also don't say, Hey, we are a. $50 million company, and I haven't been in the business in two years.
And so, [00:10:00] so they built this behemoth and, and so they just, they just give high level overview, which is not always accurate. And, and something I say a lot, uh, people don't brag about the bad deal they got. Right. I mean, there's a lot of people who didn't get great deals. Who are saying they got a great deal.
And so I think seller expectations are not realistic sometimes. And so, and, and I hate to bash my own industry, but there's a lot of brokers in the space who don't know what they're doing when it comes to heating and air plumbing companies. Right. And, and they need a listing. And so if they meet with somebody and it's a million dollar company, I just had a phone call 20 minutes ago, prime example, I had a phone call 20 minutes ago.
Guy said, I'm talking to other brokers. I said, fantastic. He is doing about a million dollars in sales. And I said, so what, what is the check need to say for you to walk away? And he says, well, you know, I'd probably do it. I'd go as low as 2 million. And I, and I said, you're not, I'm not, I hate to be the bad guy, [00:11:00] but, but I'm not gonna get you $2 million.
I, I, I'm just not gonna do it. And he's like, well, I talked to the other broker and when I told him that, he said, yeah, he'd listed. And I said, well. He can list it there, but he is not gonna sell it there. And so, so some brokers have that same conversation with somebody and they say, 2 million, and they say, great, let's go to market at 2 million.
You could look at biz, buy, sell, and see that all day long. Mm-hmm. Right. There's all these listings that are not really for sale, in my opinion. And so I think there's a lot of things that lead to a, a, a seller thinking their business is worth more, and part of it is. They're getting letters and you, I'm sure you do too.
Mm-hmm. You're getting emails and letters and phone calls from all these people that say they wanna buy your business. Now, they've never seen it, they've never seen the numbers. They don't know what makes it up, but they wanna buy your business. And so, so that builds this false sense of, of valuation as well.
Jack Carr: Yeah. And, and where we've seen it before and I'm curious if you have as well, is specifically on the broker aspect and even the owner aspect is they, they do a larger portion in their business where we [00:12:00] actually do get through an LOI and we get into the due diligence stage and we find out, hey. You know, a larger portion of your business is actually remodel and new construction work, which you weren't indicating on the front end.
And now we have to retrade because this isn't, this isn't a full service, uh, maintenance service, repair, repair, replace business. Do you, do you get that a lot or you, are you able to kind of, um, cut those demands pretty early on?
Patrick Lange: Yeah. So when we list a business, and if you look at any of my listings, and we've talked about 'em previously and you've seen some of them on the, on the ad that we're running, it's gonna say how much is, is, uh, commercial versus residential?
How much of it comes from new construction or remodel type work? And so I'm, I try to be as upfront as I can with that to protect my own time. Right? Yeah. If I know you're looking at service repair replacement, and it's 70% construction. You're gonna see that and you're not gonna bother me, right. At the end of the day, and I don't mean it that way to sound like you're bothering me, but it's, but [00:13:00] you're not gonna request information and I'm not gonna have to vet you, and we're not gonna have phone calls on it because it's not gonna check your box.
Right. At the end of the day, it just doesn't fit in your business model. And so I want, when I'm putting information out there, I'm doing it almost more to, to, to get rid of buyers than necessarily to attract buyers. Because in most markets, there's a lot of buyers looking in the space. If you have. A reasonably priced service repair replacement business is gonna be interest.
And so if there's, if there's underlying issues that I think that's gonna cause a problem for people, I'm gonna try to tell you that ahead of time. Yeah. So that way you can say, Hey, this is not for me. I'm gonna check out, because it's a lot of work to vet buyers and to get the information out, and follow up and set up phone calls with sellers and do all those things.
And if, if it's not gonna be a good fit for you, I wanna value your time. I want you to know, Hey, I can look at this listing not a fit for me. I'm gonna ignore it and go onto the next one. And so, so I think, I think some brokers. [00:14:00] And I hate, once again, hate to bash my own industry, but, but they're trying to get as many people in as they can and, and, and they end up wasting their time and, and buyer's time.
Yeah. Right. At the end of the day, um, I wanted, I want you to be, to look at it and say, yeah, that's a fit for me. I'm the onset. You're not, you're gonna need to see the details of the business. But all residential, all service, repair, replacement, it's a multiple I feel comfortable with. Hey, I'm gonna raise my hand and say I want some more information.
Jack Carr: Yeah. And so with that, so what separates when you're looking at two businesses that are moderately close, what separates that, that five to $8 million, like solid exit versus the the $3 million, $2 million fire sale of the person that's just trying to get rid of debt. Uh, what, what's the difference between those businesses that have, you know, what a similar top line may be?
Patrick Lange: So there, there's a lot really super open
Jack Carr: ended question. Yeah,
Patrick Lange: yeah, yeah. We can, we can talk for the next hour on that, but there's a few [00:15:00] key things, right? One, it's owner involvement. You know, if it's Bob's heating an air and every review says, Bob did a great job, and Bob answers the phone, and Bob runs the service calls and Bob's the, the salesman and Bob, blah, blah.
And, and so the business can't grow, right? And so, and at the time of sale. Now I need to hire a new salesman, a new technician, a new CSR, uh, a new gm. And, and so you're, they're killing their own value 'cause they won't get out of their own way, is one of the first things. Every company that I see that's stuck at a million dollars in sales is because the owners are perfectionist when it comes to either plumbing or heating and air.
Yeah. They don't believe anybody can do it as good as they can. And so they're gonna do it all. And, and so that they're the biggest hindrance to their own growth once they get above that level. Then it starts to become business mix, right? Construction is one of the key things that chases buyers away.
Rightfully so most of the time. And so, so that's the next thing. And trying to be everything to everyone. You know, we're half [00:16:00] commercial, half residential. We do boilers. Oh, yes. And chillers. And we also do all these other 90 different things. We're, you know, we're in hydronics and we're, we're doing all these things as you know.
Finding quality technicians can be challenging in the market. Finding one that can do refrigeration and residential and can do an install and can do, you know, all these things, you know, you're searching for a white unicorn someplace. Yeah. Right. And so, so that's the other thing that really hurts it. Poor books and records.
Um. Running a business to save taxes and running a business to maximize sales price are two different businesses. And, and I've been self-employed for 25 ish years, and I understand being creative with my accounting, but if the ultimate goal is to sell your business, you've gotta show a profit. And not a profit is not a spreadsheet with all of your add backs from your grocery shopping on your credit card, right?
I mean, mm-hmm. To me, I wanna be able to handle buyer tax return and say, there's the business, there's [00:17:00] its numbers, not, Hey, let me give you 22 spreadsheets on how their kids' college is somehow being paid for as cost of goods and all these other things. So, so that's the other thing. Um, and, and repeat.
Right. Um, I think building a business that's repeatable, that it's plugging somebody into the system that has systems in place, I think, I think that's probably the other thing. And I, and once again, I can go on and on and on. Yeah, no, I
Jack Carr: mean, you, you hit on some great, great points, right? I mean, I think a lot of those can be consolidated into a, you're not using the business as your own piggy bank, which surprise, surprise makes sense.
You need to, to optimize the business. Buyers don't wanna buy your piggy bank. They wanna buy a business. Um, making sure you have some, um. Repeatable systems. That's not just Bob. It is an actual business that has, is predicated on what you're buying. You're buying the systems and the customer base, making sure that is solid.
And then it sounds like, um, which is a big one for me, and, and one I, I give [00:18:00] heavy devaluation on, but that's not shared by the market. And why I think I lose most of these deals is I, I run a plumbing and HVAC company. Those are. Same name, right? Same business logo, same everything, same back of house, same CSRs.
But don't get me wrong, I'm running two separate businesses under the same name. Right? And if I were to go do new construction, it would be three businesses. And if I were to go do hydronics and or geothermal, it would be four, and then refrigeration would be five, and then electrical would be six. And then plumbing, new construction B seven is, I understand, um, as somebody who's run multiple bit, run multiple.
Uh, divisions under a single business is that it can, it's not, um, it's not linear. It's, it's almost, uh, it's like J Curves. The more businesses that you have under that umbrella, the more things that you do. Uh, the more businesses, I call it businesses, but the more, uh, difficult running that business is gonna be because there's just so much more to it.
You have to run three sets of ads, three sets [00:19:00] of LSAs, three sets of, um, SOPs, three sets of managers. It just becomes so much more. Um, so that, that's what we see a lot when we try to go out and buy is. Is they're still getting this high multiples for, Hey, I run a million dollars in electrical. I run 500,000 in plumbing, and I run 1.5 in HVAC.
Give me that five x and I'm going, no, I'm not giving you that five x. You run a $1.5 million HVAC company. Like, that's what I'm buying. I don't want any of the other things a 500.
Patrick Lange: Well, and here's. I don't mean to cut you off there, but here's the other thing. A plumber and electrician are two different people.
Yeah. I mean, from a personality standpoint and from a training standpoint, and my experience has been you've gotta treat them different, right? And you've gotta price things different and, and oftentimes the pay structure is different. You know, that plumber typically needs to show up and be able to diagnose the problem, bid the work, and do it.
All at the same time. And a lot of people use a tech flip model in, in heating and air. And so the tech [00:20:00] shows up, either does the repair or says somebody's gonna come out and give you an estimate for something else. And, and so, and their personalities are different. And so now you've gotta treat all these different businesses and all these different people.
And I mean, it, it, it's way more work. At the end of the day,
Jack Carr: it is, it is. And no, no comment I on, on any of that just because, uh, I don't, I don't want anyone, anyone listening to take any words outta my mouth. They're all wonderful people. In their own ways. I
Speaker 3: wasn't saying anything negative. So don't, I don't mean to cut my own throat either, but you No, absolutely.
If you're watching,
Jack Carr: I have my plumbing and my h It's like having, uh, multiple children. They're, they're different. They're different. Patrick, you love 'em for their own reasons. One likes to absolutely, one likes to play in poop and the other one likes to, to be in hvac. So, you know, no judgment. No judgment. I mean, so what going.
Um, kind of against, uh, I mean, those, those are the very large obvious ones. Are there any kind of hidden metrics that, that you always look at? So some, for example, uh, some hidden metrics that I've [00:21:00] seen in my mind that would make a company more valuable in the long run. Um, being on ServiceTitan, for example, do you, do you see some of those or are there any kind of best practices that.
You see drive valuation up half a point a point. Um, generally everyone
Speaker 4: knows leads are tough to come by, but what if they weren't service? Scalers is the no BS marketing team for contractors, and they're running S-E-O-P-P-C, LSAs and Google My business campaigns that actually bring in customers, not just clicks.
They've delivered consistent leads for me, tied to real revenue, and they can do the same for you. Sign a 12 month contract and your first month is free. Click the link below to get started. Service killers, no bs. Just leads.
Patrick Lange: Yeah. A few things. So one, not necessarily any specific CRMI don't see a difference between Housecall Pro and ServiceTitan from a valuation standpoint.
Mm-hmm. I do. From a, everything's on paper system to a CRM. Right. I mean, that there's, there's a, a valuation [00:22:00] difference there. Um, certainly that, that plays out, um, advertising spend, right. You know, I have a lot of companies that I sell that are 25, 30-year-old companies and spend zero on advertising, 100% phone rings more than they can get to it.
They're telling people to call somebody else in the summertime because there's just so much work to a company who has built a sales machine and it's high advertising spend. Not much customer loyalty. It's typically a reactive customer that's responding to an ad as opposed to somebody who's, they've been in their house.
50 times over the last 20 years. So, so that relationship level, um, and then employees, well let, can we stop
Jack Carr: on that one? Which, which one do you see as the more valuable one there? Because my, my preface has always been, uh, don't buy a business that is only the word of mouth, just because getting the advertising portion up on a word of mouth business is so difficult.
So the growth ends up being. Uh, very, very hard [00:23:00] for the operator because they have to go try PPC, they have to go try this channel and this channel, and they end up spending 2, 3, 4, $500,000 on trying to get the channels up. But obviously right there is, once you can figure out those channels, or if your background is in, in some kind of, uh, local, you know, SEO marketing, um, there's opportunity there.
So what, where do you see the valuation, um, kind of do better? Is is in one or the other or are you just saying like, some for different owners it'll change based on their skillset?
Patrick Lange: Yeah. What we see, and I hate to disagree with the host on No, go for it. I'm, I'm more than
Jack Carr: open. Yeah.
Patrick Lange: What we see is buyers, buyers love companies that don't have the advertising spend because also those companies have more customers and they can typically service, and they also have never marketed to their customer base.
And so where I see buyers coming in and liking that is they'll ask. Do you, do you market to your customers? Oh, we haven't done that ever. We were gonna do something with [00:24:00] postcards and we never did kind of thing. And so most buyers that we meet see it as an untapped potential. Mm-hmm. And they're not paying for it.
Where instead of going out and marketing to the general public. They could have thousands of customers who've never been marketed to, but know, like, and trust the brand. Yeah. And so automatically there's a well of opportunity there. And so typically we see a higher valuation given on that because one, it's existing customers who are not shoppers often they've been there 20 years and haven't gone anywhere else, as opposed to the customer who replied to the $69.
Maintenance ad and, and they were able to upsell them to something different.
Jack Carr: I love it. I love, I love the disagreement. I'm still sticking to my side only just because, um, I think that that's a perception, a, a misperception for new buyers rather than actual fact of operations. So I think an [00:25:00] operations that is easier said than done and the amount of capital is vastly misunderstood to actually get a marketing program up.
But there is the, uh, I mean the opportunities there. I'm not disagreeing with you. I'm, I'm just saying that I think that for most buyers, that opportunity is vastly underestimated, um, on how much time, energy, and work it takes to get there versus buying the system of like, oh, I put $2 into this machine, I get $6 out, and I just have to keep doing that with the same copy.
Um, interesting. Yeah. I love it.
Patrick Lange: I think you're accurate, but in, in a lot of what I'm talking about that's willing to pay are bigger buyers Yeah. Who potentially have really dialed in their marketing nationwide. That makes
Jack Carr: sense. They, they, they have the machine already. They just need to, I they need the customer list and then they just implement their process.
Absolutely. Versus having it come, come up can
Patrick Lange: also often too, on those. Older, smaller companies, um, their pricing is off.
Speaker 3: Yeah. Oh yeah.
Patrick Lange: Not night and [00:26:00] day. So I never tell somebody to buy the low price leader. Right. You buying the cheapest customer in town typically has the cheapest customers. Um, and so you come in and raise prices to what they need to be and to be profitable and to do the things that you need to do, and customers will leave.
But I'm saying there's often. Um, opportunities for upsells, indoor air quality. Mm-hmm. That increased filtration, that kind of stuff that these customers have never been offered because the business has been run by a technician who thinks UV lights are, you know. Flies, they don't work. Who doesn't believe in cleaning, uh, duct work That, you know, there's all these things that, that, that many in the industry kind of argue about.
Jack Carr: Yeah. Things they should repair the R 22 systems because they're the greatest style of system that's ever been. Yeah, exactly. I, I'm,
Patrick Lange: they're doing, they believe they're doing the customer a disservice by selling a more energy efficient mm-hmm. Piece of equipment with a 10 year warranty and those kind of things on it.
So, so it's a different viewpoint. And so I think that's where I see diamonds in the rough. [00:27:00] Um, are those customers that have been repaired, repaired, repaired for 30 years and because the, because the seller believes they're doing a great job and I, and I don't think there's any malicious intent there.
They really believe in that. Yeah. And so. And so I, but I think there's a lot of scenarios where repairings not always in the customer's best interest and I'm, I'm not a believer at all in the rip everybody off and everybody needs a new piece of equipment. Even if they just replaced it two years ago. I'm not in that camp at all.
But at the same point in time, I think, you know, somebody's got a 15-year-old or 20-year-old piece of equipment and that you're putting a thousand dollars. Potentially more in a year. It may not be in the customer's best interest to do that kind of stuff. Yeah,
Jack Carr: no, I definitely agree. We see that a lot with technicians and having to train them out of that mindset and old owners, so who can't seem to grow their business 'cause they can't get outta that mindset either.
Right. Um, interesting. And, and so you mentioned, right, you have some larger buyers. You have some smaller buyers. What's the str like, what's the, um, who's buying companies today? I guess is, is who do you see, especially [00:28:00] since that June, June 1st, SOP came out from the SBA, like, who are your buyers now? Um, if, if you are getting ready to sell your business, who should you be designing that sale for?
I.
Patrick Lange: You know, that is, that has really evolved and continues to evolve. The, as you mentioned, the SBA change, um, really has put the halts on on several of the buyers. So last year I think we sold 24 companies, and probably 10 of them were to. Private equity, I'm calling them private equity buyers or financial buyers of some sort that have some sort of backing or buying of companies.
Of the remaining 15, five of them were probably. Bankers, insurance agents, somebody who wanted to get in the trades for whatever reason. My dad was in the trades, or I heard something good about a trade, or I went to a seminar and they said, buy the trades, whatever it is. Five of those were, those five of them were also, um, local [00:29:00] competitors.
Somebody that operates in the market next door and wants to get bigger, um, you know, or expand within their region. Mm-hmm. Um, and then the remaining five. A mix of employees buying out own. Okay. Interesting.
Speaker 3: Yeah.
Patrick Lange: Um, or kids. I, I sold several companies last year. Mom and dad. Yeah. Owned a heating and air company, or a plumbing company, owned it for years, sold it to private equity.
The kids stayed and hated working for private equity and said, I'm out, but I know how to run a company and I'm gonna buy my own. Very cool. And so, so that would, would be the other, there, there, so there's, there's all sorts of buyers and, and, and there's been a lot of private, not private equity, but, uh, you know.
Not from the trades using SBA financing, getting in the trades. Mm-hmm. As you mentioned, that rule change has kind of put the brakes on that a little bit and, um, and so those we're still getting a lot of calls from those buyers and they're trying to find a way from a licensing perspective to make it happen.
Jack Carr: Yeah, because there's still ways around it. It's just a, it's the, the buyers who are gonna be [00:30:00] doing it are very committed because they're going to have to go and get licensure or find someone to partner with to have licensure. Right. Interesting. And so you, you said something that really struck to me. So when I always, um, talk to, to buyers who are potentially interested, uh, I always say.
Right there. You, you almost had a very nice split. Private equity has more money, so of course they're gonna be more active, like that's their full-time job. Whereas, you know, an individual buyer might have another job and they're switching or whatever the case may be. Um, do you find from a seller's perspective that.
There are certain sellers that only want to sell to one of those sub secs. So like they only wanna sell to private equity and maximize, or they only wanna sell to an individual. They don't want to sell it to private equity. 'cause I always tell them, I said, you know, design your online brand of who you are as a buyer.
To who you are as a buyer. Don't try to be private equity if you're, you know, an ex tech, like [00:31:00] be an ex tech, that, that has a lot of weight with, um, an individual selling this company who wants somebody who knows what they're doing moving in. Um, so curious, your take on, on how a buyer should brand.
Patrick Lange: Yeah. So, so yes, sellers have a preconceived notion on who the buyer for their business is oftentimes.
Mm-hmm. And usually it's wrong. Okay. I, I, I sell, I sell a lot of companies to a lot of people with no trades experience, and they do very, very well. Great business people, great business minds. Don't know a capacitor from a contactor when it started, but they're able to learn it, right? Yeah. And so I have a lot of sellers that will do calls with buyers.
Call goes extremely well. When the call's done, I'll call the seller and say, what do you think? He was fantastic. He's got the money, has experience in running businesses, the multimillion dollar levels, but, but he can't fix an air conditioner, so I don't think he's right for us kind of thing. I, I have that conversation a lot.
Mm-hmm. And, and at the end of the day, you've gotta sell your business to who you feel comfortable with. And so I have a lot of people too, when I have to do the [00:32:00] initial phone call with them. I'll never sell to private equity. Well, well, tell me why. They don't even know what private equity is. They just heard it and they heard they're bad people and they're gonna fire everybody and they're gonna do all these things.
Yeah. So, so much of it is wrong, perceived, uh, who the buyer is. Um, but I had somebody compare one time selling a business and buying a business is like shoe shopping, right? You go on the shoe shore and you stu shoe's four. Easy for me to say. And you put a shoe on, it doesn't fit, it doesn't mean it's a bad shoe, it's not a good fit for you.
Yeah. So just put it back and get the one that fits right. Same way, in my opinion, with buying, if you're a buyer or you're a seller, I see too often buyers try to convince sellers that they're the right person to buy the business and they're the the best person and they're gonna do all these wonderful things.
If you have to convince somebody to sell you your business, don't buy. That, that's just not, there's enough businesses out there that you could find another one to buy. And same thing [00:33:00] with sellers. Sellers will do phone calls and they're like, what should I say? What should I do? I said, be you Tell 'em the truth.
Yeah. Because if, if they blow this business up on the initial phone call to be something that it's not, when you do your due diligence, you're gonna find out it wasn't what they said anyways, and you're gonna walk. So let's not waste your time. Tell 'em the truth. They ask a question, tell 'em the truth. They either like you or they don't.
They don't like you. Fantastic. We'll find another buyer who will like you. Same thing on on the buyer side. I see buyers wanna buy a business so bad that often they'll throw reality out the window. And, and I have a lot of people who send me deals as a result of, of, uh, your, your newsletter. And, and I'll say, Hey, I'll look at a deal for you.
They'll send me a deal. I'll be like, you have any industry experience? Nope. It's gonna be my first one. Oh, so you're gonna buy a commercial company that does 80% new construction and you know nothing about the industry. That's gonna be your first one. Well, well, when you said it that way. Well, yeah, when I [00:34:00] said it that way, you're buying something that requires a ton of knowledge and you have none of it.
So do you understand about working capital? I don't need working capital because it, you know, it's a service repair business. Well, no it's not. It's construction or it's commercial and you don't get paid for 60 days. 60 days, yep. Have you factored that cash flow issue?
Jack Carr: Yeah.
Patrick Lange: And so, so. So it's both sides.
And I know it went off on a tangent probably longer than No, that's good.
Jack Carr: That, that's, that's actually, I think that to, to con, not to take words outta your mouth, but, uh, to consolidate it, it, it sounds like both the buyer and the seller need to be honest to themselves and not try to be somebody who they're not, which is what I, that's exactly what I say is you brand yourself to who you are because what we see a lot, and, and I was very guilty of it as well.
I mean, I did have some companies we bought up prior, small, you know, minority positions, but I'm not private equity and I, you know, uh, the, the company that we were running was called, uh, gold Ram Ventures, [00:35:00] and it made it sound like a venture firm, but it really wasn't. And you know, I, looking back, I said I probably could have gotten farther if I was just saying, Hey, I'm honest, this is me.
I am a great operator. I know HVAC, I know plumbing. Let me buy your business. I'll take care of it and I'll take care of your people. I'm a good person. Um, and I think that goes a lot farther than having to, uh, work that out later on down the line. That, okay, this is an operator, not a large firm.
Patrick Lange: Here's the reality of that too.
For most of these people, most of my sellers, let's use the seller side as an example. It's the biggest sale of their life. They've never sold. Never sold a company and it's their baby, right? They, it's a financial transaction at the end of the day, but the numbers are the easy side. When you're buying and selling, it either makes mathematical sense for both sides or it doesn't.
It's everything else that comes with it. And so most sellers are scared to death that their people aren't gonna be taken care of. Yeah. And so, so giving [00:36:00] them peace of mind that I'm a human and I'm gonna take care of it. And these large private equities. Now do that. They understand that. And, and so they come in and they brag about what a great job they've done building the company and they're gonna take care of their people and they love everybody.
And so that, that's what they're telling them, right? So if you're an individual buyer. I think you have a leg up. I think you have a better opportunity to say, Hey, I'm gonna live here. My kids are gonna go to school here. I'm gonna take care of your people because I need them. I don't have a bench of 500 other people that I can stick in their spot and we're gonna build on what you've done.
Yeah. And so, so I think just being you and if you're a financial buyer who don't, doesn't, doesn't have the ability to run it, be honest and say, Hey, I'm gonna bring resources that you accompany your size, can't bring to the table. We're gonna do it, take better care of your customers and your people. So it's not that complex.
It's being real with people. Yeah. Because this is, it's very personal to a seller.
Jack Carr: Yeah. Very eloquent, eloquently put. I think that that's actually the same advice I try to give. 'cause I mean, that is [00:37:00] the, the best way to do it. Utilize what you can and be honest. And then the one bit is also legacy, right?
You, like you said, it's their baby. They've put 20, 30 years of literal blood, sweat, and tears, right? All three of 'em, probably multiple times into the business, onto the business floor. And um, you know, even, even little things such as the name, right? We, we, we've seen, um, institutional buyers come in, buy up, you know, 10, $15 million EBITDA companies and change the name and.
I couldn't imagine building, you know, Jack's HVAC for 20 years for only for it to then then change the name to, you know, um. I'm not gonna say any private equity names, but private, private equity, one, two, or three name, you know, it, it, it means a lot to, I know a lot of owners is that they can keep the name and they can go around town and say, oh yeah, there's my truck, there's my old truck, there's my old truck, there's my old truck.
And so yeah, I think that that's, that's a big portion. People that legacy and, uh, [00:38:00] to know that their name is being taken care of.
Patrick Lange: Well, and that's, and, and I think two points on that, two sides. One, I just lost a deal. Private equity buyer initially said, we're gonna keep your name, everything's gonna be fantastic.
You're gonna see your name around town. Seller was excited, everything's fantastic In the process. The buyer said, well, we actually own a company down the street and we think we're gonna rebrand your company to their name, who's been their competitor for 25 years. Yeah, right. You'll tell hard, right? And so, but then I also, I have sellers who are, who are scared that, Hey, I'm still gonna live in the same town.
I'm still gonna go to the same church. I'm worried they're not gonna do a good job. Oh, yeah. Taking care of my, and so, so they're thinking, Hey, it would be better if they would change the name because then I'm not affiliated with it anymore. Then they, if they do a bad job, it doesn't reflect on me. So understanding how personal, especially when it's, you know, Bob's seating and air, and Bob's selling the business, that, you know, that, that, that carries a lot of weight [00:39:00] with them.
Yeah. And so making sure you understand how they feel about that. If I'm a buyer, I'm buying the name right. That's what I'm paying for on, on a lot of the level. So to me to, to change the name, just, I don't, I don't get the logic behind that. Um, that's my biased opinion, but it does happen. But if you're a buyer, ask the seller, yeah, what are your thoughts on me keeping the name?
Are you okay with that? And if they're not, then they probably don't trust you, you know? And so getting an understanding about that could be important.
Jack Carr: Yeah, great, great, uh, insight and so to, to round this out. Uh. We talked about, you didn't see that the industry is going to see any kind of huge compression in the next couple years.
Do you see any kind of technology or regulatory changes that could come through though and cause any kind of waves in the market? Is there anything from an insider's perspective that you're worried about, happy about from a regulatory or technological standpoint? If you like what you heard and want more content like this, head on over to jack acquisitions.com or click the link [00:40:00] below to sign up for the weekly newsletter.
Patrick Lange: Yeah, we're already seeing it happen with the refrigeration, right? I mean, I think so. I, I deal with a lot of manufacturers, so I've gotta be. Polite and pleasant when I say it. But a company, a lot of these manufacturers didn't let a tragedy go to waste in COVID, right? Mm-hmm. I mean, it was every, it was once a year we have a price increase, and there it was every two weeks we had a price increase year.
Speaker 3: Yeah.
Patrick Lange: Yeah. Because something was happening and so, so so you've we're already living through that, right? And, and, and the phase out of four 10 and what's that gonna look like? And getting equipment and, and all the, so, so I think that's, that's gonna continue to happen. Um, and I think as a business owner you just have to deal with it.
And they had to deal with it from R 22 to four 10, you know, now you're, now you're in a customer's home and saying, Hey, the equipment I sold you last year, we can't get the refrigeration for the, the refrigerant for anymore. And now we've got a. Sell you a new one. So I, so I think it, it's putting people in bad spots, in my [00:41:00] opinion.
Um, and, and it's outside your control. And I think there's gonna be more of that, you know, as, as, as Washington. And we have, you know, changes between, you know, Republicans, Democrats, and back and forth. You know, they're, they're eyeing that, right? And they're constantly saying, we're gonna get rid of this bad refrigerant and no, it's gonna hurt us economically.
And it's back and forth and back and forth, and you're the game. And so. So I think that's gonna continue. I think from a compression in the industry, what we talked before was kind of compression valuations, you know, I see we're already seeing a lot of, some of these consolidators are not doing very well, you know, and we've seen one file bankruptcy and we, um, you know, I hear stories of others who are consolidating in, in, in their brands.
And so I think change is, is constant. Right? Two years ago. Maybe three years ago, everybody I would talk to is like, oh, I gotta sell. Because every private equity group's buying up every company and I can't get any employees. Now they're coming to me saying, I've got more [00:42:00] employees than I need. 'cause they're all leaving these private equity companies.
'cause they don't do a good job taking care of 'em, you know? So I think it depends on which side of the fence you're on and when you're on it, you know, depends on all that. The one constant is change. Yeah. And I think you need to be able to handle that. I think it's magnified now. As a consumer, we get more information than we did say 10 years ago or 20 years ago.
And now we're hearing all these different core stories and depending on what you believe dictates your response to it, um, it is what it is. And as a business owner, you just gotta go through it. And I think the technology is similar. You're seeing a lot of people now offering pricing on their websites, um, that wasn't happening previously.
So you had an opportunity to get the customer's home. Um, you know, things like that. Technicians speed of information that now you can have a technician on the road sooner because on their phone they could diagnose something for them and, and to be able to do stuff. So I, I think that, that, once again, that change is the only constant.
Jack Carr: Definitely agree. It's been, you know, I've only been in the industry now three years [00:43:00] and the um, day one to today is a vastly different. Um, industry than when I started, and it's, it's been very, it's been a fun ride. Um, that's, I mean, we've been continuing to go through it and just make sure that, as we're going through it, to plan for those changes and do your best to, uh.
Deal with them as they, they come to fruition and not, not worry too much about it because it's gonna be what it's gonna be. I love it.
Patrick Lange: Yeah. You can't get, you can't control it, right? At the end of the day, you can control your response to it. And the companies that have been successful for the last 30 years are the ones who can, who, who handle their response to it.
And that's gonna still be the companies that are
Jack Carr: doing
Patrick Lange: well 30 years from now.
Jack Carr: Well, Patrick, I mean, you and I could probably talk for three hours. Um, I, I, I love this, this is what we both talk about all the time, I'm sure, just because, uh, it's. Uh, infiltrated our lives as a, from a business standpoint to a, now we just talk about it all the time.
Talk shop. Right? Um, thank you so much for coming on today. [00:44:00] Uh, if people want to buy business, sell a business with you, uh, where should they go?
Patrick Lange: So I'm super, obviously my website, business modification group.com. We have all of our listings on there. Information, I've got a YouTube channel. Um, that I probably have 70 or so videos on buying and selling in the trades.
Mm-hmm. Um, that's a great spot. I'm super active, which is where I think you and I first connected potentially on social media. I'm on LinkedIn, I'm on Facebook a lot. Um, I'm on Twitter. Now just happened. And I, and one of the other ones I'm on, I don't, I don't do it active enough. But, uh, uh, anyways, Facebook and LinkedIn is, is probably my, my most active spots.
Mm-hmm. And so I'm, I'm on there communicating with people all the time. Give me a call. I mean, I'm happy to talk to anybody. My office is 8 5 0 6 6 9 2 4 9 8. 8 5 0 6 6 9 2 4 9 8. Uh, reach out any way they can. I'd love an opportunity to help. Yeah, I
Jack Carr: think when you type in HVAC acquisition on Google, you and I are some of the [00:45:00] top SEO.
It's like Patrick, Jack, Patrick, Patrick, Jack, Jack, some other random guy, and we spent a lot
Speaker 3: of time and money to get there, so, so don't mess that up. Anyway, uh, if
Jack Carr: you're watching the last bit is, um, uh, if you can read this. Yeah. Patrick does have a special, uh. Page, if you do business modification group.com/jq, uh, I think we, you, you're doing a, uh, free business valuation and, um.
Uh, newsletter sign up. So I would highly, highly, if you were looking at ever thinking about buying an HVAC business or a plumbing business, I'd sign up for that. I'm on it. I know John Wilson's on it. There's a lot of people on it because it is a very good resource to see, um, new deals that are coming on the market.
So,
Patrick Lange: yeah, absolutely. I, and, and for your listeners, we had had agreed that I'll look at deals that aren't my ideals. So if somebody's got a deal right on that page, they can reach out to me and say, Hey, I'm about to buy this company. Kind of, what do you [00:46:00] think of this? What about that? And, and I'm happy to do that.
The reality is most people don't know who to ask. Yeah. Both buyers and sellers. And I try to be that resource. You know, I, I was a broker, bought a heating and air company. I went to go sell it and I couldn't find any information that was accurate. And I thought, man, as a broker, if I can't find it, what about the guy who's been fixing air conditioners for 30 years?
He didn't stand a chance. Yep. So that's when I switched my practice. I sold my company kind of cheated, my son bought me out. So my son and daughter-in-law run my old heating and air company. Um. And, and started just doing that to get the information out because most people are asking the person calling to buy them what their business is worth.
And that's not the place to do it. And most buyers are asking the broker or the seller, and that's not the way to do it, or their
Jack Carr: CPA, which is terrible. Do not ask your CPA please. They are so wrong and they anchor you to bad numbers. Um, in both directions. Bankers can be a little better, but I mean, guys, he just offered.
A free valuation. So I would highly, highly recommend you take him up [00:47:00] on that. Uh, thank you Patrick, for your time. Thank you everyone for listening. If you like what you heard, go ahead, drop a comment below, let us know what you want us to ask him next time when we bring, um, and back on. And, um, head on over to Jack Acquisitions and subscribe.
Appreciate everybody. Thank
Patrick Lange: you
Jack Carr: so much.
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