Private Equity Firms Show Interest in Skilled Trade Small Businesses

A New Trend in Private Equity

It seems that choosing vocational school over college is starting to yield dividends. A new report from the Wall Street Journal reveals that private equity firms are now showing interest in acquiring skilled trade small businesses. These firms are buying up home services companies, such as those specializing in HVAC, plumbing, and electrical work, with the aim of creating larger, more profitable operations.

Shifting from Family Ownership

This trend is causing a shift away from family ownership, providing significant payouts for small businesses that were traditionally handed down to the next generation or employees. Brian Rassel, a partner at Detroit-based Huron Capital, noted that one doesn't need to be in Silicon Valley to have a successful career and entrepreneurial opportunities.

Redwood Services' Acquisition Spree

Adam Hanover, chairman of Redwood Services, stated that everyone seems to own an HVAC business in the private equity space these days. The Wall Street Journal report reveals that Redwood has acquired 35 companies in the past four years, ranging from smaller businesses purchased for around $1 million to larger firms like Rite Way, valued at about $20 million, where it takes majority stakes.

Rite Way's Success Under Redwood

Rite Way has flourished under Redwood's ownership, with its annual revenue growing from $30 million to $70 million. The company has expanded beyond HVAC to include plumbing and electrical services, benefiting from increased capital, more service trucks, higher staffing, and new apprenticeship and sales training programs. Redwood has also introduced accountants to focus on profitability. Redwood CEO Richard Lewis pointed out that small business owners often struggle with these tasks or fail to update pricing, which Redwood reviews quarterly to maintain competitiveness.

Trades as Stepping Stones

The trades can provide good wages for workers without college degrees and can serve as stepping stones for aspiring entrepreneurs. One such entrepreneur is HVAC worker Aaron Rice, who co-founded his plumbing business in 2012 after overcoming addiction and prison time. He sold the company when it had 18 employees and $3 million in annual revenue, a move that he says has given him peace of mind.

Bottom Line

This trend of private equity firms acquiring skilled trade small businesses is a testament to the value and potential profitability of these enterprises. It provides a lucrative opportunity for small business owners and offers a promising career path for those who opt for vocational training over traditional college degrees. What are your thoughts on this development? Do you think it's a positive or negative trend for the industry? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.