The benefits of strategic buying decisions

When a plumbing contracting company wants to grow, there are a few different ways to do so — they can open a new location to expand their geographic service area, add a new trade, such as HVAC or electrical services, or they can buy out another business.

Brad Williams, vice president of The Beringer Group, and Plumbing & Mechanical columnist, notes that larger plumbing companies buying a smaller business will find the transaction to be immediately accretive to the value of their business.

“That term “accretive” is essential to truly understand why it is important for a company to grasp the concept of buying to sell,” Williams writes. “The term accretive is an adjective that refers to business deals that result in a company’s gradual or incremental growth in value. I will lay out an example to help paint this picture. We will assume that Company A does $3 million in EBITDA, and sells at a 6x multiple. Company B, who does $20 million in EBITDA, will garner an 8x multiple. The value proposition for Company B buying Company A is that Company B will realize immediate value by buying Company A. This is because Company A will now be part of Company B and the EBITDA that was associated with Company A will now sell for Company B’s multiplier. Let's say you buy a company that does $3 million in EBITDA. You will immediately see the value of that purchase reflected in your own EBITDA, meaning that you just grew your company by $3 million dollars in EBITDA.”

Acquiring a plumbing company in a new geographic location allows the acquiring company to expand its reach and tap into new markets. With a broader footprint, the company gains access to a larger customer base and can benefit from economies of scale. Additionally, there is the added benefit of gaining experienced and skilled plumbers and technicians. This influx of talent can lead to increased efficiency, improved service quality and the ability to undertake more complex projects. As an added benefit, the sharing of best practices between the merging entities can foster a culture of continuous improvement.

ServiceTitan Pantheon event, Ken Goodrich, chairman of Goettle Air Conditioning, and Tom Howard, vice president of customer experience for ServiceTitan, discussed acquisitions during an educational breakout session during ServiceTitan’s Pantheon event, held in Orlando, Florida, this past September. Goodrich, who has completed hundreds of acquisitions in the industry, shared some of this experiences and best practices with attendees during the session. One such suggestion was a “tuck in” or purchasing a phone number or database from a company that was closing or owner who was retiring.

“When I first started a business, I was in a truck, a one-man operator trying to execute my vision,” Goodrich said to the audience. “There was the biggest guy in town, probably had seven trucks. This was in Las Vegas. I always admired him. And I was waiting for the day I would surpass him. Unfortunately, the guy passed away. One night, I was sitting there, and I had a brainstorm, and I was wondering if I could get that phone number — this was before the internet — so the customers would call, and we would pick up and handle the calls. So the next morning, I went to the phone company and told them I’d like to buy this phone number. The phone company said because it was a business account, it had to be held for one year to give them a chance to turn it back on if they wanted. I said, ‘I assure you, this guy is not going to come looking for his phone number because he passed away.’ They said if I could prove he passed away, we’ll give you the phone number.

“Now, I’m a young guy, about 26, thinking of how I could prove this guy passed away,” he continued. “Do I take my Polaroid camera to his tombstone and take a picture? What do I do? Then I talked to someone and they told me to go down to the health department and get a copy of his death certificate. So I did — it was about $2 — then I went down to the phone company to give it to them. The lady was flustered, I don’t think she thought I would actually do it. She gets her supervisor, the supervisor keys in something to the computer and says the phone number is ringing to your office now. That cost about $7.

“I walk into the office and the phone is ringing, there’s nobody there to answer it. They said, ‘Hello, is this Day and Night Air Conditioning?’ That was the name of the company. I said, ‘Well no, Joe unfortunately passed away, but is there anything we can help you with? She said, ‘Well, the last guy gave me a quote for a job for $7,000, is that still good?’ I said, ‘Yes, ma’am!’ I didn’t even know what it was, but I was taking in $7,000. I took the address down, went down and saw it was a profitable job. We signed it up and went from there. We continued to get calls from that phone number. And I thought I’m doing this. I spent a lot of time in the beginning years acquiring phone numbers, acquiring retired and bankrupt operators as my means to grow. I’ve typically buy them much less than a marketing cost, and this was going back to when there wasn’t any digital to build the business. Over time, when digital did come along, we started the buying phone numbers, websites and URLs to attach yourself to have their customers have a portal for service to get to you. That’s how I got started.”

Goodrich also mentioned his company would give a $100 bonus to any techs who brought back old phone numbers no longer in use if they saw a company sticker on any piece of equipment. They had to call and verify the number was disconnected or went to a resident, then bring it back to the company. He also found success buying databases from companies

As with any strategic move, a well-thought-out acquisition or ‘tuck-in’ strategy, due diligence, and careful integration planning are essential for realizing the full benefits of growth. By embracing this approach, plumbing contracting companies can build a stronger, more resilient future in the ever-evolving landscape.