A Complete Guide to Selling a Plumbing Business

Introduction

If you run a plumbing business, you’ll know that with the right team, the right marketing, and a good reputation in the local area, success for your business is only a matter of time. As an established company, it won’t be long before you start to wonder, “Could I sell my business to a larger company? Could a business broker or M&A firm help?”

Mergers and Acquisitions (M&A) can be tough to navigate – to sell a plumbing business, you need a firm grasp on how buyers will value your business, what they intend to do with it post-sale, and how to avoid those late-stage pitfalls that can easily doom a sale. 

In this article, I’ll guide you step-by-step through these stages and more. I’ll help you see the plumbing industry from the buyer’s side, show you how trends and innovations affect their interest, and what you can do to reach the finish line before your competitors. For additional tips on how to formulate your own exit plan and strategy, check out this article, which includes a checklist to consider.

Selling a Plumbing Business: The Outlook

Plumbing, HVAC, pest control, and roofing companies – these are all home services that are targets for acquirers and companies looking to bring several services together in one business. Doing this can provide them with scale, coverage, and increased profitability.

The U.S. plumbing industry is fragmented, with small companies growing by an average of 1% per year and no single entity holding more than about 1% to 5% of the market. Taken together, that’s ripe ground for M&A players, and the pace of consolidation remains brisk. 

Home services transactions run in the hundreds of thousands of dollars, with those in the lower middle market reaching a median of $40 to $50 million. M&A activity itself shows no signs of slowing – it has increased by an average of 10% to 12% per year since 2000 – and serial acquirers remain highly active in the market. 

A number of platforms have formed to consolidate providers and service the growing needs of consumers, ranging from regional consolidators to franchises to service aggregators bringing multiple trades together.

Small plumbing companies grow at about 1% per year, while plumbing M&A deals in the lower middle market average $40 to $50 million.

What Drives Plumbing Industry M&A?

Plumbing businesses remain attractive to buyers for several reasons:

Recession Resistant

Homeowners always need plumbing and repairs regardless of economic conditions. The plumbing industry is a stable and attractive sector, even in economic downturns.

Pool of Demand

The need for plumbing services is primarily driven by the number of homes, which is roughly in tandem with the overall population.

Nondiscretionary

Most plumbing services are not discretionary (i.e., not optional), so consumers are less likely to cut back on purchases. The result is an industry that’s less volatile than many others.

High Spend

Plumbing is among the more expensive domestic services, and homeowners are sometimes willing to splash out on premium products if they’re used more frequently or add value to their homes.

Aging Housing

As the average age of homes in the U.S. continues to increase, issues such as aging fixtures, poor original installations, lead, galvanized steel or polybutylene pipes, and bellied lines require servicing more and more frequently.

Advantageous Pricing

Plumbing services are diverse and open to added value and, therefore, higher pricing. Fees can also vary based on the complexity of the job, time of day, day of the week, and size of the provider, so competition remains healthy at both ends of the transaction.

Service Urgency

Plumbing services are needed, sooner or later, by nearly all homeowners. Need is often not anticipated and is time-critical. This reduces a consumer’s willingness to hunt for the lowest price while increasing the likelihood that they will stay with a provider they have had good experiences with in the past.

Repeat and Cross-Selling

Many homeowners are loyal to a service provider once they find one they trust. As a result, providers offering other services, such as HVAC and electrical work, develop cross-selling opportunities.

Maintenance Plans

Some plumbing services benefit from a regular maintenance schedule, such as heater maintenance and drain cleaning. Providers can offer regular service plans, including preferred pricing, priority scheduling, and even free HVAC and home inspections. Maintenance plans ensure recurring revenue, extra service needs, and customer retention.

Customer Retention

Customer stickiness is high, especially on the residential side. Approximately 40% of homeowners call a plumbing company they have used previously for their next service or fix. Plumbers with a strong reputation can generate repeat business, which reduces the need to advertise.

Broad Customer Base

Still, plumbing companies have a diverse customer base that’s not dependent on a few select customers. A lack of client concentration is very attractive to potential acquirers.

Service Line Expansion

Aggregators that offer multiple services can become a go-to provider for homeowners, which increases customer lifetime value and reduces sales and marketing costs.

Scalability

Aggregators also benefit from scalability as many corporate services can be centralized and provided across service lines. Platform development, labor dynamics, and new technology all favor scaled players. This growth can then accelerate with more training and buying power. It also allows companies to justify hiring more specialized staff, such as full-time recruiters, which improves efficiency. 

Strong Financial Metrics

Plumbing services benefit from high margins and steady revenue due to the stability of demand.

Market Dynamics

Being resistant to commoditization, plumbing maintains high pricing. The plumbing industry is also a large and fragmented market, which enables companies to grow by acquisition without the threat of strong competition from a national player that controls the market.

Multiple Expansion

Companies can grow by acquisition, increasing their value by expanding the multiple of their company through growth – called multiple expansion. Even without improving the business, an acquirer can create value in this way since a smaller plumbing company might be valued at 3 to 4 times earnings, while a larger one might be valued at 6 to 7 times earnings.

Buyers know that plumbing firms are usually in demand, recession-resistant, and highly scalable, with a healthy mix of new and repeat customers.

Challenges of Scaling a Plumbing Company

Despite the attractiveness of the industry, plumbing faces several ongoing challenges, some of which drive many owners to exit:

Competition

Plumbing remains highly competitive. The more acquisition there is, the more companies continue to scale and professionalize. As the bar rises, all players must continue to improve just to remain competitive.

Innovation

Another challenge is the pace of innovation and technological change. This can sometimes be an issue for industry veterans who may prefer tried and tested modes and methods of delivery.

Scale

Another challenge for some is that it may be difficult to scale a business past a certain point. The smaller a company is, the more hats the owner has to wear and the less time they have left for growing and scaling up.

Labor Shortages

Perhaps the biggest problem in nearly all manual trades is that talent is becoming more difficult to find and retain. A greater number of older technicians retire every year than there are newer, younger entrants. Although efforts are ongoing to encourage young people into trades and to retain experienced professionals, labor imbalance and wage inflation remain a problem.

Inflationary Costs

When the talent pool shrinks, and labor costs rise, inflation is never far behind. Supply chain bottlenecks still push material costs higher. Most contractors react by passing the price increases to customers, while larger businesses attempt to negotiate favorable terms with vendors in an attempt to control costs. Others have looked to labor efficiency, such as route optimization for technicians and other upgrades to manage rising costs.

How Buyers Scale a Plumbing Business

Scaling up offers companies many potential advantages, such as economies of scale through reduced cost structures, an expanded range of services, and improved recruitment and retention. But buying several plumbing businesses and aggregating them into one monolith firm is often not enough. Buyers must add value to the companies they acquire if they want to continue to remain competitive. 

To realize these advantages and grow successfully, companies must first define a growth model and strategy. For example, an acquirer can add value to the companies they acquire by negotiating savings on purchases, through better access to talent, or by deploying superior technology. 

Here are some of the most common strategies companies use to improve the companies they buy:

Human Resources

• Elimination of Duplicate Staff: One of the simplest strategies open to acquirers is to reduce duplicate expenses, including staff. These might include superfluous accountants, HR advisors, customer service reps (CSRs), and dispatch service reps (DSRs).
• Recruitment and Retention: Larger companies nearly always have superior recruitment and retention strategies, which means they can improve operating costs through increased tenure. They can offer improved salaries, benefits, training, and other perks and can then charge a price premium of 15% to 25% due to better response times and resources. This, in turn, means they can offer higher salaries.
• Training Programs: Larger competitors usually create more effective and consistent training programs for their staff. Some have started online and offline academies and offer apprenticeships, while others have partnered with trade schools, colleges, local government, and e-learning platforms. In addition, continual training on new operations, devices, standards, and practices has become the rule. 

Sales and Marketing

• Marketing Strategies: Another frequent improvement is the implementation of more robust marketing, including end-to-end changes to companies’ branding, advertising, web presence, and community engagement. Much of this can be easily transferred from one company or geographic market to the next so that acquirers can see immediate improvements and higher profits.
• Digital Leadership: The selection process for plumbing services is often relatively short, with customers typically spending an hour or less researching providers and evaluating fewer than three companies before making a choice. And because speed is paramount, many select a previous provider to save time. Large companies have an advantage in this regard. They can earn higher brand visibility with a higher investment in marketing, advertising, websites, and search engine optimization. They can also use marketing analytics to optimize their spending and reduce lead-generation costs by spreading them across multiple branches. A higher spend means improved return on investment (ROI), such as cost-per-click and greater click-through rates than their smaller competitors. 

Operations

• Digital Tools: Another frequent improvement by acquirers is the use of advanced digital technology, such as pricing and payment platforms, invoicing software, knowledge bases, and ordering systems for parts and materials.
• Optimized Pricing: Acquirers regularly optimize a business’s pricing by either increasing their hourly rates, moving to a flat-rate pricing model, implementing minimum fees, or adding fuel surcharges or trip charges. 
• Operating Performance: Many companies can improve the performance of the companies they acquire by using a more robust set of operating metrics and targets through an improved customer relationship management (CRM) system or other operational improvements.
• Standardized Services: Larger plumbing companies often standardize their service delivery models across multiple markets. For instance, they might route calls through a call center for added-value service offerings, such as routine maintenance or third-party financing. Doing this standardizes metrics and marketing company-wide. 
• Enhanced Customer Service: Scaled providers usually offer more responsive customer service, especially after hours, as well as web chats, call-backs, complaints processes, and more. 

Service and Geographic Expansion

• Geographic Expansion: Acquirers can expand the service region of the companies they acquire, especially if nearby areas have limited competition.
• Service Expansion: Many companies also expand their companies’ service lines, often by proximity to multifamily spaces. Common examples include drain cleaning, sewer line inspection, HVAC, electrical services, and new construction.
• Financing Programs: Given the increasing price of many home services, financing options are playing a critical role in the process. Larger companies can more easily incorporate third-party financing programs into their sales and have better access to rebates from finance companies. 
• Upgraded Hardware and Tech: Larger companies can deploy newer and better technology to their plumbers, such as leak detection and water analysis systems, live fault tracking and alerts, pipe freezing kits, payment card devices, and rugged and waterproof phones and tablets.
• B2B Relationships: Manufacturing and distribution in plumbing is highly concentrated, and many suppliers hold significant pricing leverage. Manufacturers may prefer working with larger companies and offer them preferential access to bespoke products and services. Distributors may offer them better rates and faster, more tailored fulfillment, which the plumbers can pass to customers as discounts and incentives. 

When plumbing businesses scale up, they can offer faster response times and better resources to their customers – at a 15% to 25% price premium.

How Plumbing Companies Expand and Consolidate

The following is an overview of the most common expansion and consolidation strategies in the plumbing and home services market:

• Independent Companies: Local, independent companies service only their local communities and grow as a typical business.
• Aggregators: Aggregators acquire local brands and consolidate their operations for improved economies of scale and operational efficiency.
• Franchises: Franchised models are networks of locally owned businesses with the support of a national franchisor, such as Roto-Rooter, Mr. Rooter, Aire Serv, and Mr. Handyman.
• National Brands: Traditional retailers, such as Lowes and Home Depot, offer on-demand home services that service customers on a national basis.
• Technology Platforms: Tech platforms connect homeowners with a network of prescreened home service providers, such as HomeAdvisor, Angi, Handy, and Thumbtack.

Reasons for Selling a Plumbing Business

Why do plumbers sell their businesses? There are a variety of reasons for selling, ranging from retirement to strategic financial maneuvers. Potential buyers must understand the seller’s motivations as they may impact the terms a seller is willing to accept. 

The following is a summary of the most common reasons for selling a plumbing business:

• Retirement: Retirement is the most common reason owners sell. But highly driven, type-A personalities may find they’ve pulled the trigger too soon and later regret their decision to let go. Without a passion to keep them occupied, ex-entrepreneurs will soon itch for something productive to do. On the other hand, owners who are too entrenched in their company may delay pulling the trigger, and their health may even suffer before they let go. For any owner, it’s crucial to build an exit and a post-exit plan sooner rather than later. 
• A Better Opportunity: Some owners may seek more profitable or more attractive opportunities. This is often the case with small business owners who struggle day-to-day while their friends thrive in another business or industry. At the same time, some owners may feel like their business is a bad fit for their skillset or passions, even if it’s highly profitable. 
• Tax Matters: The sale of a business triggers capital gains taxes and ordinary income taxes. Mindful of this, entrepreneurs are often motivated to sell sooner rather than later, particularly if favorable changes in tax rates are anticipated. 
• Economics: Some entrepreneurs, especially serial entrepreneurs, sell purely for economic reasons. These owners are experienced and sophisticated and will deal with all parties in a no-nonsense way, with one eye trained on the bottom line. Typically, they won’t sell unless they achieve their financial objectives.
• Divorce: Selling a business while going through a divorce can be stressful, but it’s a common reason to sell. In nearly all cases, the consent of both spouses is required, even if one is not a shareholder, and the sale will have to be approved by a trustee. This is particularly so in community property states.
• Bankruptcy or Financial Pressures: Few sellers admit to financial difficulties – that’s tantamount to failure or defeat. But the root cause may be management issues, fierce competition, or an inability to obtain financing. When analyzing an unprofitable business, it’s important to determine whether the problem can be fixed. Often, it can, with a new owner or management team. If the issue stems from competition or another industry factor, it may not be so easily solved.
• Competition: Sometimes, an owner knows in advance that competition may adversely affect their business, but it isn’t always obvious by their financial statements. Perhaps they operate in a small market, and several larger competitors have opened branches nearby, meaning they know they’ll have difficulty remaining competitive. Perhaps they know they’ll catch the eye of major players who will try to squeeze them out. 
• Business Growth: An owner selling because they struggle to manage growth isn’t common, but it happens. A talented entrepreneur may drive revenue without preparing – financially or structurally – for their own success. These owners often seek outside capital, and debt financing may be hard to come by. They may believe that another industry will suit them better, or they may choose to partner with a private equity firm and continue to drive growth in the business.
• PE Fund Close Out: Private equity (PE) funds usually operate with a limited life span. While financial buyers can extend the holding period, they rarely do and are often under pressure to liquidate before the agreed date by selling companies on the private market. Waiting to sell may result in a higher valuation, but it could also lead to a lower internal rate of return (IRR) and could give the fund a reputation for unplanned extensions. 
• Recapitalization: Owners who operate a large, successful business may want to take some chips off the table and diversify their net worth, especially if they’re near retirement and uncomfortable with a large portion of their net worth tied to an illiquid asset. When structuring a recapitalization, or “recap,” a PE firm purchases a portion of the company and retains the owner as a key manager and part-owner. This means the owner can partially cash out while laying the ground for a second sale in the future. PE firms bring more than just money to the table – they bring industry and operational experience, which often boosts the value of the business.
• Boredom: One of the less-discussed reasons for selling a business is simply boredom or lack of interest. While common, this isn’t usually a cause for concern for buyers. Businesses that operate in trades can be prone to producing ennui for the owners because they may not present enough variety or like-minded interaction to the entrepreneur. By selling, the owner can use the capital from the sale to jumpstart their next idea. 
• Burnout: Many entrepreneurs are tired after long hours and vacation-less years in the business, and burnout becomes a legitimate reason for selling. They may not have the processes or the deputies in place to escape for a few weeks and rejuvenate. Post-sale, the business can be restructured, and the talent hired to allow the owner to focus solely on what they enjoy and do best. 
• Disputes: Arguments among family members or partners are common in business. If they find their problems irreconcilable, selling may be the only option – especially if there’s not enough cash to buy out the other partners, or they can’t agree on a price, and there’s no buy-sell agreement in place. It’s nearly impossible to sell a minority interest in a small business, so the way out is often to sell the entire outfit. It’s also difficult, though not impossible, to sell a majority share if one partner remains.
• Health Reasons: Some owners are forced to sell due to unexpected changes in health. In the case of acute health problems, it’s likely that significant capital will be left on the table. Others cite “health reasons” if they feel boredom and burnout aren’t legitimate enough or they’re not comfortable disclosing the real reason. In any case, proper planning and processes help you increase its value, improve your peace of mind, and allow your business to weather personal disasters and continue without you. 
• Relocation: Whether it’s time for an owner to swap the city for the farm, be near family when grandchildren arrive, or simply seek a warmer climate in the South, relocation is a life-changing move and a valid reason for selling a business. That said, relocation is another “catch-all” phrase that some owners use to disguise their true motivations for selling.
• Death or Disability: Death is a traumatic event for all parties involved. Without proper planning, an untimely death can drastically reduce the value of a business overnight. An exit plan can help prevent changes to the value of the business in such cases.
• An Unsolicited Offer: Unsolicited offers can come in the form of mass mailings from business brokers or a legitimately interested M&A player or competitor. If you remain prepared, you can negotiate effectively with any buyer who makes an approach.
• Industry Change: For some, the home service industry is changing far too quickly, and they may feel they can’t keep up. Perhaps they lack the resources to properly use technology in the business and haven’t fully embraced digital tools and devices. An inability or unwillingness to embrace change is a common reason for selling, particularly for those owners nearing retirement.
• Combinations of Factors: The reasons for a business sale aren’t mutually exclusive – several may contribute to an owner’s decision at once. An owner may need a back operation that requires three to six months’ rest while also feeling generally exhausted and in need of even longer. This may also be an opportunity to finally get rid of that 20% minority partner who brings nothing but trouble, not to mention the competitor that’s closing in and grandson #2 on the way. Any one of these factors in isolation may not be enough, but two or more together might prompt an owner to sell.

How Long Does It Take To Sell a Plumbing Business?

Selling a business has become more difficult and takes longer than it did a decade ago. The internet has given rise to endless options, and legal agreements have grown more complex. As a result, buyers are more selective and cautious than ever about the business they target.

Specifics That Affect Plumbing Business Sales

• Selling Price: Historically, smaller businesses have sold fastest, but I believe that trend is reversing. In fact, businesses with SDE (seller’s discretionary income) or EBITDA (earnings before income, taxes, depreciation, and amortization) below $1 million take the longest to sell, often from 9 to 12 months or more. Larger businesses often sell quickly because they’re more desirable, with fewer available for acquisition. Note: The differences between SDE and EBITDA are discussed in this article, and how they are used to value a plumbing business is specifically discussed below.
• Asking Price: If the business goes to market with a price, the more reasonable it is, the faster the business should sell. Larger businesses generally don’t give an asking price, but for smaller ones, lower asking prices hurry the deal along. Hence, businesses priced at more than 76% of the ultimate selling price take 40% longer to sell than those that sell at the asking price.
• Preparation: The more prepared an owner is, the faster a business will generally sell. Generally, because the business must also be an attractive candidate to sell quickly if the owner is well-prepared, but the business is not highly profitable or desirable, then it’s unlikely to sell quickly.
• Desirability: The overall desirability of a business is a key factor in determining how quickly it’ll sell. The more profitable, scalable, smooth-running, and future-proof it is, the easier and quicker it is likely to sell.
• Region: Businesses for sale in desirable, high-population-growth areas tend to sell more quickly. For instance, it’s usually easier to sell a business in Orange County, California, than in Iowa. Businesses in large, established populations, such as Los Angeles, are easier to sell. Higher populations mean more available buyers and more offers.

General Factors That Affect Plumbing Business Sales

• The Internet: The internet has expanded options across all goods and services, and businesses are no exception. Before the internet, most businesses were sold through newspapers or word of mouth. This created a highly inefficient market in which buyers struggled to compare their options or branch out beyond their local area. Ironically, businesses were often easier to sell and sold quicker, probably due to a lack of qualified alternatives and the scarcity of options on the market.
• Information: The internet has also provided a wealth of information on buying or selling a business. Today’s buyer is more sophisticated and often considers a range of alternatives, regardless of whether they’re a strategic buyer, private equity firm, or family office. This, again, can hasten or impede the process, depending on the value of the business. 
• More Businesses for Sale: With growing populations and urban sprawl, the number of businesses for sale has steadily increased. This has resulted in a larger number of options for buyers and depressed prices. It also increases the likelihood of a protracted sale for less desirable businesses.
• Economic Factors: Economics always affects the rate at which small businesses sell. Unemployment and interest rates are particularly impactful. Higher interest rates increase the cost of borrowing for buyers, which diminishes their returns and the amount they can afford to pay for an acquisition.

Businesses with SDE or EBITDA below $1 million take the longest to sell, often from 9 to 12 months or more.

A Timeline for Selling a Business

The following is a brief description of the steps involved in selling a business and the likely time frames.

How long does it take to prepare a business for sale?

• Preparation: Preparation includes valuing the business and preparing a confidential information memorandum (CIM) and other key documents. Preparation is a controlled and predictable step, but the time it takes may vary from one to eight weeks.
• Finding a Buyer: This step requires little active effort from the seller other than meeting with prospective buyers. This can be frustrating for the seller, who may feel as if nothing is happening for weeks at a time, but it’s important they keep their focus on the business and maintain consistent revenue or growth.
• LOI to Closing: Negotiating and closing a deal generally takes from two to five months: one month to negotiate an offer with a buyer, one to two months to complete due diligence, and one to three months to close the transaction once due diligence is completed. However, several factors during this stage can slow things down. Due diligence can stall for many reasons, such as delays with bank financing or inaccurate financial information, while delays from attorneys, accountants, banks, or license-transfer approvals can add months more. Take time frames with a pinch of salt, and be prepared for the transaction to last significantly longer than expected. 

How To Sell Your Plumbing Business Faster

Below is a list of specific actions you can take to ensure your business sells as fast as possible:

• Valuation and Exit Plan: If you’re serious about selling your business, I recommend obtaining either an opinion of value or a formal business valuation and a list of specific changes you can make to improve it. Improvements can be made right before your business is put on the market or several years in advance. It’s never too late (or early) to prepare.
• Exit Strategy: Planning the sale of your business is critical. At Morgan & Westfield, we can prepare a formal exit strategy for you that examines hundreds of variables and includes a 20 to 30-page customized plan, along with checklists of documents you need to prepare and specific action steps to take before putting your business on the market.
• Prepare for Due Diligence: Organize a list of documents most buyers will request to perform due diligence. This will speed up the sale and increase the chances of a successful deal.

Value of the Business vs. Time To Sell

Most of the factors that increase the value of a business will also shorten the time it takes to sell. The following factors will increase the value of a business and, together with my advice, will hasten a deal for your business:

• High desirability 
• Reasonable asking price
• Attractive geographic region
• Adequate preparation

Questions Buyers Ask When Acquiring a Plumbing Company

The following is a list of the most common questions buyers ask before acquiring a plumbing business:

Brand

• Why do customers choose this company over others? 
• How good or bad are the company’s online reviews?
• What is the company’s reputation in the market it serves?
  • Buyers prefer a company with lots of goodwill in the local market. Most buyers will walk away from a company if it has a poor reputation or weak aggregate reviews.

Sales & Marketing

• What sales methods does the company use?
• Does the company use any high-pressure sales methods?
  • Most buyers will disregard companies that use high-pressure sales techniques.
• What marketing methods does the business use?
• What metrics and key performance indicators (KPIs) does the company track?
• To what degree are the marketing efforts traditional vs. digital?
• Has the business fully optimized its Google My Business, Google Local, Home Advisor, and Angi’s profiles?
  • Buyers will see a lack of robust sales and marketing methods as an easy win for them and won’t be turned off if you haven’t yet optimized this side of the business.

Service Mix

• What is the breakdown between new construction, maintenance, repair work, and other services? 
  • Nearly every buyer prefers to avoid exposure to new construction. Some are comfortable with up to 10% to 20% of the business tied to new construction, but anything more will be viewed as a challenge by the majority of buyers. 
• Does the business currently offer HVAC, electrical, or other related services?
  • National providers and platforms tend to offer at least three trades, while smaller companies may offer just one or two. HVAC and plumbing are key cross-over trades where significant added-value sales can occur.
• What are the gross margins for each service?
• What is the current geographic coverage or service area?
  • Many buyers target the south and southeast U.S. for its thriving plumbing and home services sector. That said, with demand wherever there are new (and old) homes, buyers will look first at local competition and scope for expansion. 
• What new services can be added?

Customer Base

• What is the breakdown of customers between residential, commercial, and multi-family units?
  • While the trend is to acquire residential plumbers, there is also much interest in commercial and industrial providers. The residential space has less purchasing power and service complexity, while it’s hard to ignore the earning potential of a new shopping mall or hotel chain. The latter offers high visibility and perhaps years of ongoing business.
• What percentage of the customer base is repeat business?
  • All buyers love a strong, predictable, repeat customer base.
• Does the business have any customer concentration issues?
  • Buyers see risk in a business that has customer concentration issues. They will perform thorough due diligence to weed these concerns out or structure the transaction to reduce the risk that customers may be lost in a transition.
• Does the business have contracts with any customers, such as maintenance or service agreements with B2C clients or contracts with business or commercial accounts?
  • Buyers love to see businesses with long-term contracts.

Operations

• What licenses does the business currently have? 
• Is the property owned or leased?
• If leased, what are the current lease terms?
• What systems are used for order management, scheduling, and accounting?
  •  Your business systems will ideally be easy for the buyer to integrate or replace post-closing.
• How many trucks or vehicles does the business have? 
• What is the age and condition of the vehicles?
• How well-stocked are the vehicles?
• What kind of equipment does the business have? 
• What is the age and condition of the equipment?

Staff

• Who runs the daily operations? 
• Who orders parts? Who handles customer calls?
• What is the average turnover rate and tenure of the technicians?
  • Buyers will shy away from operations that have staffing problems, which often signal multiple background issues that can be difficult to resolve.
• What are the salary levels for all positions?
• How many CSRs (customer service reps) and DSRs (dispatching service reps) does the business have?

Financials

• How are the financial statements prepared? 
• What is the cost of goods sold (COGS)?
• How is pricing determined (flat rate, hourly, etc.)?
  • Buyers see an opportunity if the company has not yet optimized its pricing strategy.
• How stable is the revenue?
• How much revenue is generated per technician?
  • Buyers see an opportunity if the company has not optimized its revenue per technician or neglected similar metrics.
• What is the average transaction value or ticket/invoice?
• What is the SDE or EBITDA?
• How stable is profitability from year to year?
• What is the growth rate of the business?
• What terms are offered to customers?
• How healthy are accounts receivable?
• How much working capital does the business require to operate?

Who Buys Companies in the Plumbing Industry?

Plumbing businesses are attractive to a variety of buyers. The following is a summary of the main types:

Individuals

High-net-worth individuals (HNWIs) are the most common buyers of smaller businesses, or those with less than $500,000 in SDE or EBITDA. The primary goal of HNWIs is to generate income for themselves. As a result, they’re risk-averse and focus on acquiring businesses that generate a consistent income stream on a smaller, manageable scale. 

Strategic Buyers

Strategic (or synergistic) buyers primarily consist of other plumbing companies and those in related fields, such as HVAC or home services. Strategics are the holy grail – they often pay a higher multiple than other buyers. Strategic buyers are often direct or indirect competitors that purchase a company as an alternative to organic growth. They have longer holding periods than financial buyers and no defined exit plan, typically aiming to integrate your company into theirs and hold it indefinitely. Growth by acquisition is so common in the plumbing industry because it usually makes more financial sense than organic growth, especially in competitive markets.

Private Equity Firms

Private equity (PE) firms continue to play a leading role in this sector’s M&A activity with little sign of slowing down. There are more than 70 PE-backed platforms in the residential space and 30 in the commercial. The number is set to increase as smaller firms enter the “roll up” game and form new platforms to consolidate smaller independent companies. Despite the activity, there’s still enormous opportunity for further consolidation, given how highly fragmented the space remains. 

Independent Sponsors

An independent sponsor (IS), also known as a “fundless” sponsor, is an individual or group seeking to acquire a company without raising equity in advance. ISs operate similarly to PE firms and share similar economics, except they raise capital on a deal-by-deal basis without a definite life span. Independent sponsors are less common in the plumbing industry but visible from time to time. You can learn more about them in our in-depth guide on the role of independent sponsors in M&A.

Search Funds

Search funds usually consist of recent college graduates, financially backed and mentored by a group of investors. Search fund entrepreneurs differ from private equity investors, as they actively run the acquired business and grow it. Searchers are less commonly seen in plumbing acquisitions as they have a difficult time competing against strategic buyers and PE. That said, if you own a business with less than $500k to $1 million in EBITDA, you may well encounter a searcher. 

Family Offices

A family office is a privately held company whose sole purpose is to handle the personal and professional affairs of a wealthy individual or family. As part of their growth and preservation strategies, family offices are seen to launch investment portfolios, including angel investments, PE, venture investments, and, of course, investments in private businesses. There are a few family offices active in the space, and they’re valuable – the principals will likely have vast experience and connections in the industry.

There are more than 70 private-equity-backed plumbing platforms in the residential space and 30 in the commercial.

How To Value a Plumbing Business

When valuing a business, acquirers generally look for consistent profitability, which is an overall indicator of business health.

Like most businesses, a plumbing business is valued based on a multiple of their SDE or EBITDA. These are two different ways of measuring the profit or cash flow. The main difference is:

• SDE is the primary measure of cash flow used to value small businesses and includes the owner’s salary as an adjustment.
• EBITDA is the primary measure of cash flow used to value mid- to large-sized businesses and does not include the owner’s salary as an adjustment.

The purpose of calculating SDE and EBITDA is so businesses can be compared to one another on an apples-to-apples basis. To make for a uniform comparison, the adjustments made when calculating SDE and EBITDA should be consistently applied.

SDE (Seller’s Discretionary Earnings)

SDE is used to value small businesses in which the owner actively works in the business. In most small businesses, it’s difficult to distinguish between the profits and the owner’s compensation. Many owners do not pay themselves a salary and instead take a “draw,” or else pay themselves less than they would a manager – maybe even 50% less than the going rate. 

Additionally, many business owners deduct numerous personal expenses through the business, often thought of as perks which would not be paid to an outside manager. For example, a business may be paying for an owner’s personal vehicle, health club membership, vacation home, and personal travel expenses. It’s unlikely a business would pay for these perks for a typical manager.

SDE addresses this problem by blending the profits of the business and the owner’s compensation into one number, called the seller’s discretionary earnings – SDE. This is the total compensation that would be available to a new owner-operator of the business, regardless of how they decide to characterize the income – whether it’s perks, a salary, a draw, or dividends.

SDE is normally used with businesses that have less than about $1 million in SDE. The calculation is mainly used by business brokers who tend to sell businesses run by an owner-operator.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

EBITDA is used to value mid-sized businesses (greater than $1 million in EBITDA) that can be run by an outside manager. If an owner currently runs the business, their compensation is normalized to market levels. For example, if their current salary is $500,000 per year, and the market rate is $200,000, their compensation is normalized to $200,000.

If the current owner is not paid a salary, then an appropriate market rate is deducted when calculating EBITDA. The same is true if they’re underpaid. Regardless of what the current owner pays themselves, their compensation is normalized to current market levels, which averages from $150,000 to $300,000 for most businesses in the lower middle market.

EBITDA is normally used with businesses that have more than about $1 million in EBITDA and mainly by M&A advisors and investment bankers who specialize in selling businesses to private equity groups, competitors, and other companies. EBITDA is also used as a metric for public companies, although earnings, or simply net income, is more commonly used.

Valuation multiples range from 2.5 to 5.0 times SDE for smaller businesses, and 4.0 to 8.0 times EBITDA for larger businesses.

Intangible Factors That Impact a Plumbing Company’s Value

The value of a business can’t always be boiled down to a set of numbers. It can also be impacted by numerous intangible elements, such as reputation and customer relationships. A thorough evaluation of both the tangible and intangible factors will provide a more accurate estimate of the value of a plumbing business. 

Below is a summary of the main elements that can impact the value of a plumbing business:

Market Position and Branding

• Local Market Position: Businesses with great reputations in their community will sell at higher multiples than those that don’t have stellar reputations. Plumbers who drive well-maintained trucks and take precautions to minimize cleanup will be seen in a far better light, and many buyers will keep the local brand name to remind customers of their goodwill. It’s difficult to replicate loyalty that’s been built over decades, and this has a greater impact on valuation than many other factors.
• Online Reviews: Businesses with a strong online presence and positive reviews will also enjoy higher valuations since home services fiercely compete for reviews and Google rankings. A company with poor online reviews will be difficult to salvage and will sell at a low multiple as a result.

Customers

• Customer Base: A loyal and growing customer base increases a business’s value. Buyers will look at the number of repeat customers, the geographic coverage, and any contracts that guarantee future work, such as agreements with commercial clients.
• Residential vs. Commercial: The ratio of residential to commercial customers will also influence the valuation. Residential plumbing businesses are a solid bet, while having clients on the commercial side suggests higher sales volumes and guarantees of future work. 

Service Mix

• 24-Hour Service: Whether you provide a 24-hour phone service for plumbing emergencies will not greatly impact your valuation since this is a feature any buyer can easily add after they acquire your company. 
• New Construction: Buyers, especially private equity funds, avoid plumbing businesses tied to new construction, which tends to be cyclical and harder to plan for. 
• HVAC and Electrical: Many companies offer both HVAC and electrical services in addition to plumbing. If the buyer doesn’t wish to expand in this way, or they don’t have the infrastructure to continue all your services, this will negatively impact the multiple they’re willing to pay. Buyers don’t see tremendous value in offering additional services unless they generate significant revenue.
• Green Products: Like every sector, the plumbing industry is keen to safeguard the environment. Products that conserve water and reduce waste underline to customers that you’re thinking of the future of the planet, and since these products often come with a premium price, they reassure buyers of the future of the business.
• Specialization: Buyers may view highly specialized services negatively unless they’re easily continued and don’t require significant changes to the buyer’s licensing.

Financials

• Trends: Buyers will examine financial trends in the business over three to five years. Positive upticks will significantly improve the valuation.
• Revenue: One of the most important metrics a buyer will consider is total revenue. The higher the revenue your company generates, the more it’ll be worth. But “profitable” revenue is preferred to “unprofitable” revenue – the goal is fewer costs and expenses. 
• Profit: Another critical metric for buyers is the total SDE or EBITDA of your business. Generally speaking, this factor has a greater impact on the valuation of your company than all other factors combined.
• Average Growth: Buyers will also examine the degree and rate at which your business has been growing. The stronger your growth rate, the more your company will be worth.
• Quality of Financial Statements: Buyers will examine three to five years of financial statements. Sellers must have excellent books that correctly reflect customer deposits and potential warranty liabilities. Any business with scant or worrisome records will sell at a very low multiple, regardless of other factors.

Staff

• Involvement After the Sale: Some buyers prefer to partner with owners who want to stay actively involved in the business and may grant them an ownership interest going forward. If you’re willing to stay involved after the sale, you will greatly expand your exit opportunities and potentially increase the valuation.
• Owner Involvement in Sales: The less involved you are in sales, the less risk you pose to a buyer, and the more your business will be worth. If you’re working 60 hours per week and your business is largely dependent on you, it’ll sell at a low multiple. But with reliable staff and systems in place, your business can smoothly transition to a new buyer with less risk of disruption or hiccups. Buyers like simple integration, and they’re willing to pay for it.
• Management Team: A strong management team can significantly increase a company’s value. Buyers like to see committed professionals at the top of the chain, solving problems and keeping the work (and water) flowing. 
• Staff: The real value of a plumbing business often lies in its workforce. Finding and keeping apprentice plumbers and journeymen is one of the major bottlenecks to growth in the industry. Buyers look for certified, well-trained staff with clear duties and high-quality training. 
• Staff Certifications: The right accreditations, such as those offered by NATE (North American Technician Excellence), the industry leader in technician certification, also present significant value to a buyer.
• Staff Turnover: A business with happy employees and a low turnover rate is worth much more than a business that has poor retention. High turnover makes it difficult to keep the business stable after you leave, and buyers grow nervous at the prospect of large hiring rounds once they step into your shoes.
• Licensed Staff: If you aren’t the only licensed master plumber in your business, that can be a significant advantage. Becoming a master plumber takes several years, and many buyers won’t be licensed themselves. So, if you are the primary license holder, it will likely extend your deal timeline significantly while the buyer sorts out-licensing, especially in more stringent states.

Operations

• Physical Location: The location of a business can also impact its valuation. Needless to say, plumbing businesses in high population-growth areas are worth more than those where the population is declining.
• Equipment: Businesses with newer, well-maintained equipment will also sell at a slightly higher multiple than those without. You should keep excellent records of equipment purchases and servicing to show that equipment has been properly maintained.
• Documented Processes: Well-documented processes are important for new PE firms investing in their first platform. While other investors will bring their own processes to the deal, your documentation will help smooth out the transition and integration period for all.

Plumbing M&A: The Typical Transaction Structure

The transaction structure of buying a plumbing business can take several forms. The following is a summary of the primary financial components of a typical deal structure, along with links that include more detail on each option:

• Cash: Cash accounts for the majority of the payment in most transactions. The amount of cash down ranges from 20% for smaller SBA-financed transactions to 70% to 80% for many mid-sized to large transactions.
• Earnouts: Earnouts are rarely used in smaller transactions, but they may play a part in your transaction. After cash, they’re the most frequently used component of middle-market M&A transactions and typically comprise 10% to 20% of the purchase price for larger transactions.
• Third-Party Financing: Financial buyers often use debt (or “leverage”) to maximize their returns, while strategic buyers use it less frequently, especially if the target is significantly smaller than the buyer. If third-party financing is involved, it’s delivered in the form of cash to you at closing. If a seller note is used, it will be subordinated to any senior lenders’ positions. Earnouts and other terms of the transaction may also be subject to the approval of the lender. 
• Seller Financing: Seller financing usually ranges from 10% to 50% of the total purchase price. It is common in smaller transactions that cannot be SBA-financed, where a typical seller note ranges from 30% to 50% of the purchase price. Seller notes are also common in mid-sized to larger transactions, although they’re often much smaller, in the range of 10% to 30% of the purchase price. Seller financing may also be used in place of a holdback.
• Holdback (Escrow): A holdback is commonly used to fund indemnification claims for a seller’s breach of reps and warranties, which are contained in the purchase agreement. Holdbacks typically range from 10% to 15% of the purchase price. They are often held by a third-party escrow agent in line with the survival period for the reps and warranties, which normally range from 12 to 24 months.

The Seller’s Goals

As the seller, your goal should be to:

• Maximize the cash down you receive.
• Maximize the likelihood that a buyer can obtain third-party financing.
• Minimize the possibility of less favorable forms of payment, such as:
  • Stock
  • Consulting agreements
• Minimize the probability of contingent payments, such as:
  • Earnouts
  • Seller financing
  • Escrows/holdbacks

How To Prepare Your Plumbing Business for Sale

We recommend preparing your plumbing business for sale one to two years in advance. During this time, you can get things in order, showcase your business as an attractive option for buyers, and command the highest possible price.

The following is a summary of our recommendations when it comes to preparing your plumbing business for sale:

Brand

• Collect any documents, reviews, or awards that demonstrate the value of your brand and offer “social proof” in the local marketplace.
• Document your customer service strategy to ensure complaints are efficiently resolved and don’t negatively impact your reputation.

Services

Track your revenue so you can show the buyer a clear breakdown of your revenue by service type. You should track your revenue both by service and by market segmentation. Following is a current breakdown of the market:

• Products and Services Segmentation
  • General plumbing services: 53.8%
  • Mechanical services: 34.4%
  • Building sprinkler system installation: 6.3%
  • Steamfitting and piping services: 3.6%
  • Lawn sprinkler installation: 1.9%
• Major Market Segmentation
  • Residential construction: 31.1%
  • Other general construction: 23.0%
  • Healthcare, public safety, and educational buildings: 15.9%
  • Office buildings: 13.3%
  • Retail and storage spaces: 8.5%
  • Manufacturing and industrial buildings: 8.2%

Sales & Marketing

• Track leads in stages and conversion rates at each step of the sales funnel.
• Document your marketing tactics and track sales by marketing source.
• Record your pricing strategies to demonstrate they’re effective, measurable, and repeatable. 

Finances

• Track your KPIs, including the following:
  • The number of maintenance plans
  • Average ticket sales price
  • Number of customers in the database 
  • Average cost per lead
  • Percentage of revenue from repeat business
• Waterproof your financials well before you begin the sales process. You should have a strong set of accounting practices and policies to support a clean set of books. 
• Select the right time to sell. The ideal time to sell is when your business is on an uptick and when you can show positive sales growth.
• Be ready to measure financial metrics, including:
  • Backlog
  • Customer deposits
  • Gross margins by service line
  • Gross margins by market segmentation
• Make sure your financial statements match your federal income tax returns. If they don’t, you should ask your accountant to prepare a reconciliation.
• Ideally, use a company to process your payroll. You should also have metrics available for your staff, such as revenue per technician, average ticket per technician, etc.
• Ensure your accounting system can track all outstanding invoices (accounts receivable), as working capital will be included in your sale if your transaction is larger.
• Be able to track any key assumptions you make in your financial forecasts. For example, if you have recently increased pricing across the board by 10%, then you should be able to easily generate the financial reports necessary to demonstrate this price increase and what impact it will have on your financial results.
• Minimize the personal expenses you write off through the business, such as your personal auto insurance, expenses, meals, vacations, health insurance, etc.
• Buyers routinely request the following financial documents when analyzing the potential acquisition of a plumbing company:
  • Profit and loss statements
  • Balance sheets
  • Cash flow statements
  • Accounts payable 
  • Accounts receivable
  • Federal income tax returns

Operations

• Create instruction manuals and checklists for all key processes and roles.

Legal

• Organize your legal paperwork into an online folder or data room, including the following:
  • Permits
  • Licenses
  • Licensing agreements
  • Corporate documents – articles of incorporation/organization, bylaws, minutes, etc. 
  • Supplier contracts
  • Customer contracts
  • Insurance contracts and policies

Management

• Create a management team to which you confidently delegate authority and that can run the business without you.
• Create a strong corporate governance framework that allows your management team to make critical business decisions without you.
• Cross-train your office staff and managers to eliminate any risk of skill gaps or downtime when team members are sick, on vacation, or transitioning to the buyer.
• Fire any undisciplined or unmotivated workers.

Staff

• Develop a retention program with key employees that includes a non-solicitation agreement at a minimum and, ideally, non-compete agreements. The plan can reward key employees with a retention bonus, which helps ensure they’ll stay through the transition.
• Communicate with your team. Your staff is an asset to the business, and their anxiety and speculation over a change in ownership should be carefully considered. If you decide to keep them informed, communication should be open, early, and often. Share important news promptly and transparently, with a close eye on morale, reassuring them of their vital role in the process. Q&As, meetings, and town hall sessions are productive means of airing concerns – and maintaining loyalty – as the deal moves forward. 

Collate your reviews, track your revenue, leads, and KPIs, and organize your staff and processes before you take your business to market.

The M&A Sales Process

The following is a description of our sales process for selling a business. Note that the process may differ slightly depending on the M&A firm you hire, although the general approach remains the same.

Step One: Assessment

The value of an assessment is that an objective and thorough evaluation of your business guides you in deciding if the time is right to sell, helps you maximize value, and addresses any preparedness issues before going to market. Your Assessment outlines important presale steps you can take to meet your goals and ensure a successful, profitable sale. It lays out your options and allows you to intelligently plan your next steps and maximize the value of your business. If a sale today won’t support your personal goals, the Assessment can help you decide how to close value and marketability gaps for the future.

• The Assessment includes:
  • In-depth Analysis: I work with you to review all aspects of your business, including your financial data, key performance indicators (KPIs), your product or service, and its unique selling point (USP). We hold detailed discussions about your personal goals, your expectations for your employees, your wishes for the future of your company, and more. I also discuss your objectives, timing, and current market conditions and help you assess your readiness for a sale.
  • Valuation: If you’re considering selling your business, this will give you an idea of what your business is worth and outline any improvements you can make before committing time and effort to a sale. If our estimation is below the value you expect, I will outline steps to increase the value before you go any further in the sales process.
  • Normalized Financials: When selling your business, it’s necessary to “normalize” or “recast” your financial statements to value your business. Most business owners deduct numerous personal expenses through their business, which ultimately lowers their net income. By identifying additional “perks,” you show buyers the cash flow and income available in your business. We will amend or normalize your financial statements and review your business’s earnings to calculate your SDE or EBITDA.
  • Sales Strategy: After analyzing your business, I map out our recommended processes and services based on our findings. My recommendations are based on the likely buyer of your business, the potential value of your company, the strategies most suitable for your industry, and the size of your company.
  • Exit Plan: This personalized report walks you through your options and helps you determine your next steps before going to market. It identifies what you can improve, making your company more attractive to potential buyers. Whatever you decide, we help you make a plan and guide you through the transition. You can shelve this plan for future use or employ it immediately.
• Your Role: Your role in Step One involves completing questionnaires and gathering documents.

Step Two: Preparation

Preparing your business for sale involves an in-depth compilation of critical documents that you will want to have ready to present to a buyer at any stage of the transaction. Having these materials ready from the outset will help you attract the right potential buyers to look at your business and then help you proceed with the transaction smoothly and quickly.

• Preparation generally includes:
  • CIM: The Confidential Information Memorandum (CIM) is a 20- to 30-page document designed to position your business in the best possible light to potential buyers. The CIM captures your business’s key acquisition benefits and competitive advantages. We use the data collected during our Assessment to create a compelling CIM containing most of the facts buyers need to understand your business, see its value, and formulate a purchase offer. The CIM is provided only after a confidentiality agreement is signed. It’s one of the first documents a potential buyer will see about your company and ensures you make the best first impression. 
  • Seller Interview: The Seller Interview is a professional, 30- to 60-minute, studio-quality recorded interview with you. This conversation includes a history of your business, an overview of the industry, information about your customers, staff, and suppliers, and a basic summary of your business and operations. Buyers want to hear the “real you,” and the interview is a pressure-free way to share your story and your business with buyers. Your interview will be professionally edited, so if you make a mistake, there’s no need to worry. You’ll sound as fresh and enthusiastic to the fiftieth potential buyer as you did to the first. A link to the Seller Interview is included in the CIM and is provided only to buyers who have signed a non-disclosure agreement (NDA).
  • Teaser Profile: A Teaser Profile is an abstracted version of your Confidential Information Memorandum (CIM) used when our marketing strategy includes directly approaching competitors. A Teaser Profile allows us to maintain confidentiality while marketing your business to direct competitors and will enable us to properly identify qualified buyers before they receive a copy of your CIM. The Teaser Profile reveals enough information to inspire buyers to reach out for the full CIM without revealing the identity of your business. After viewing the Teaser Profile, a buyer must sign an NDA to receive a copy of the CIM.
  • Pre-Sale Financial Due Diligence: Once you accept a letter of intent, the buyer will conduct due diligence to assess your business’s financial health. Buyers become wary if they perceive problems, so it’s best to identify and fix issues in advance and not risk losing a buyer it took months (and money) to find. During our pre-sale financial due diligence, we review your records and gauge any potential obstacles or questions that may arise, then prepare a report and make recommendations to improve the quality and consistency of your financial statements. This allows you to resolve issues before the buyer sees them, prevents problems during due diligence, and increases the chances of a successful sale. This step includes two 60-minute phone calls with our chief financial analyst – one as an initial discussion and one to talk through our report and recommendations.
• Your Role: Your role in Step Two mainly involves reviewing the drafts. 

Step Three: Marketing and Screening

A successful marketing strategy attracts buyers who are most likely to pay top dollar for your business. Screening buyers in stages ensures that your confidential information is carefully managed and only released to earnest buyers throughout the marketing and negotiation steps.

• This step includes:
  • Marketing: With your assistance, we identify companies that are best aligned with your business and present possible synergies through acquisition. We take any names you suggest and build a detailed research brief on the ideal target within a defined geographic range. We can approach wealthy individuals, company insiders, and industry, strategic, and financial buyers. We can contact local, national, and international buyers, private equity groups, direct and indirect competitors, and private companies. We use a variety of proprietary databases, search engines, and industry, trade, and credit directories to identify companies that meet our search criteria and geography. Once we have a launch date, we get in touch with all the contacts on our shortlist. This outreach is conducted anonymously to solicit interest from potential buyers. As soon as a contact expresses interest, we send them a non-disclosure agreement (NDA). When the NDA is signed, the CIM and other materials can be released for review in measured stages as the sale unfolds. 
  • Screening Process: We screen potential buyers in stages, releasing your confidential information only as the sale and negotiations progress. This phased release of information helps maintain confidentiality to the maximum degree and helps ensure we are negotiating with earnest buyers. You’ll only meet with the most serious candidates. Buyers are not shown any additional information beyond your ad copy and/or Teaser Profile until they sign an NDA. Buyer pre-screening ensures the most efficient and confidential method for selling your business.
•  Your Role: Your primary role in Step Three is answering questions from buyers once they’ve indicated an interest in your business. 

Step 4: Negotiations and Closing

This is a critical stage when your sale can be made or lost. From managing the negotiations through due diligence and closing, we handle every step, ensuring the process runs as smoothly as possible. 

• This step includes:
  • Negotiating the Offer: We discuss and solicit offers from interested buyers and negotiate with all parties to maximize your price and key deal terms. We negotiate favorable terms and deal structure in concert with your tax and legal advisors and then discuss the pros and cons with you.
  • Due Diligence: After you accept an offer, the buyer investigates your business. As your intermediary, we serve as a catalyst, helping you avoid setbacks and ensuring the sale maintains momentum and closes quickly. We help you anticipate buyer requests, avoid problems, and eliminate surprises. 
  • Purchase Agreement: We are involved in negotiating the definitive agreement preparation, ancillary agreement negotiations, and closing procedures. We work to keep everyone focused on the right things at the right time, anticipate and resolve problems, and keep your deal on track. We work closely with you to ensure an appropriate level of “commercial input” in the construction of the purchase agreement. We oversee the project all the way to the close.
  • Closing: Successfully closing the sale of your business requires a coordinated commitment by all parties to use tried-and-true legal documentation. The result is lower legal fees, fewer unwanted surprises, and a mutually satisfactory and profitable purchase experience. Our expert closing support includes drafting the closing package, clearing outstanding contingencies, developing an orderly turnover plan, and coordinating activities between the attorney, landlord, CPA, insurance agents, and escrow officers representing both sides in the transaction. 
• Your Role: You will be deeply involved in the due diligence process once an offer is accepted. Preparing for the transition can be time-consuming, which is why we ensure the buyer is screened before you invest your time.

Trends in Plumbing M&A

Current M&A Activity

Despite the occasional talk of slowdowns, plumbing businesses find themselves in a profoundly advantageous position. Multiple streams of new and established capital wend their way into M&A, while the plumbing market has become one of its most assured spaces. The U.S. Bureau of Labor Statistics expects plumbing to grow by nearly a quarter in the coming year or so while individual market shares remain very small. Taken together, that’s fertile ground for the savvy investor.

Will A Recession Affect Plumbing M&A?

If recession bites, plumbing can not only survive but prosper. Home services are one of the most recession-proof spaces, to begin with, but smart money grows even smarter in a recession, hunkering down in safe, non-discretionary sectors to weather out the storm. In either case, the coming years look exceptionally bright for plumbing, and M&A will take note.

The Private Equity Sale

COVID-19 saw a wave of plumbing platforms acquired by private equity. Now, as many enter the later stages of their holding periods of three to five years, we expect the market to flood as the holders seek to exit, more or less together, over the next two to three years. This will benefit new funds and investors looking to acquire fresh platforms, but also sellers, as funds find themselves with space for repeat success. So, if you’re looking to sell your plumbing business, you might consider hastening the process to get ahead of the competition. Or, if you’d benefit from a few more years to boost your revenue and refine your books, you could wait until the rush has died down and fewer plumbing businesses are available to investors.

Quality Always Win

Strong businesses with great reputations, secure management structures, and dependable profits and growth will always be on investors’ radar. In stormier times, anything but the best is seen as a risk – tentative M&A players get cold feet, valuations play safe, and PE funds look to lower-leverage options. But even mid-2021 saw 25 plumbing companies rolled up nationwide, proving that, whatever the weather, a viable plumbing business always stays afloat.

Conclusion

Selling a plumbing company can be the culmination of a long, successful career as a master plumber or simply the result of a sudden change in priorities. Whatever the reason, it can also be one of the most rewarding decisions of your professional life. 

In this guide, you’ve seen how to value your plumbing business, how to use valuation multiples to predict an offer, and how to boost that value with flawless processes and paperwork. You’ve also seen that buyers’ questions can be complex and probing, but with this guide at your fingertips and an M&A firm in your corner, the sales and negotiations process will be all the smoother.