What Private Equity Is Really Looking For When They Buy a Trade Contractor

Private equity investors have purchased more than 800 HVAC, plumbing, and electrical companies since 2022. If you own a trade business doing $3M–$8M in revenue, you have probably gotten a call already.

The interest is real. But so is the gap between what PE firms want and what most contractors actually offer. Understanding their evaluation checklist is the difference between a premium exit and a lowball you cannot accept.

The Buy-and-Build Playbook

Most PE activity in the trades follows a "platform and bolt-on" model: acquire one strong company as the foundation, then add smaller companies to build regional scale. The strategy works because trades are massively fragmented—over 178,000 independent HVAC and plumbing businesses in the U.S.—and because consolidation drives purchasing power, shared overhead, and brand reach.

Major platforms include Redwood Services (35 acquisitions in four years), Apex Service Partners (backed by Alpine Investors, $100M+ deployed), SEER Group (40+ companies), and dozens more. Even if you are not the "platform," you could be an attractive bolt-on. But the evaluation criteria still matter.

The PE Evaluation Checklist, Ranked by Weight

1. Recurring Revenue (Highest Priority)

This is the single most important factor. Service agreements and maintenance contracts signal predictable cash flow that does not depend on new sales. The target: 30%+ of revenue from recurring sources. PE interest in HVAC specifically jumped from 8% to 23% of all service-sector acquisitions between 2023 and 2024, driven largely by recurring revenue models.

A contractor doing $5M with $1.5M in service agreements is dramatically more attractive than one doing $7M with zero recurring revenue. The first is a system. The second is a sales machine that stops the moment someone stops selling.

2. EBITDA Size and Margins

Higher EBITDA commands higher multiples—but margin quality matters as much as size. A company with 15% EBITDA margins on $5M in revenue beats $8M at 5% margins every time. The industry average for HVAC and plumbing is around 3% EBITDA. Anything above 10% signals a well-run operation, and above 15% puts you in elite territory.

Buyers also look at EBITDA trends. Three years of growing margins tells a different story than one good year sandwiched between two flat ones.

3. Owner Dependency

If you are the business—top salesperson, head estimator, chief problem-solver—a buyer is purchasing your personal capacity, not a transferable asset. They want a business that runs for 90+ days without the owner present. No phone calls, no "quick questions," no emergency decisions. If it cannot do that, the risk premium goes up and the multiple comes down.

This is why owner dependency is a separate post entirely. It is that important.

4. Service Mix and End Market

PE firms rank service types by risk, from lowest to highest: commercial maintenance, residential service and repair, commercial construction, and residential new construction. Service-heavy businesses beat installation-heavy businesses because service revenue is more predictable, higher-margin, and less dependent on economic cycles.

5. Workforce Stability

With 110,000 unfilled HVAC technician positions nationwide, a company that retains its techs is a premium asset. Buyers look at average tenure, annual turnover rate, and whether you have a training pipeline (apprenticeships, trade school relationships). A business where three key techs could leave post-acquisition is a business with a major risk factor.

6. Customer Diversification

No single customer should represent more than 10% of revenue. Customer concentration means one phone call—one lost contract—could significantly impair the business. This is especially relevant for contractors with a mix of commercial and residential work, where a few large commercial accounts can dominate the revenue picture.

7. Clean Financial Records

Three to five years of organized P&Ls, tax returns, and balance sheets. Clear documentation of add-backs (owner compensation, personal expenses, one-time costs). Messy financials either kill the deal outright or cost you 1-2x on the multiple because the buyer has to assume the worst about what they cannot verify.

8. Technology and Systems

Modern service management software (ServiceTitan, Housecall Pro, FieldEdge), a real CRM, documented standard operating procedures. PE firms plan to optimize operations post-acquisition, and existing systems make that dramatically easier and less risky. A business running on paper tickets and the owner's memory is a business that requires a full rebuild.

What Makes Them Walk Away

• The owner is the business. No management layer, everything flows through one person, key relationships are personal not institutional.
• Messy books. Commingled personal and business expenses, missing years, unreconciled accounts, no job costing.
• No recurring revenue. 100% project-based work with no service agreements or maintenance contracts.
• Customer concentration. Top two clients represent 30%+ of total revenue.
• Workforce flight risk. Key technicians are loyal to the owner personally and likely to leave post-sale.

Current Multiples (2025)

• Small owner-operated (under $500K EBITDA): 2x–4x SDE
• Lower middle market ($500K–$2M EBITDA): 4x–6x EBITDA
• Strong platforms with recurring revenue ($2M+ EBITDA): 7x–11x EBITDA

The range is enormous—and it is driven almost entirely by the factors above. Two companies with identical EBITDA can see multiples differ by 3x–4x based on recurring revenue, owner dependency, and operational maturity.

PE firms are not buying your trucks or your revenue. They are buying a system that generates predictable cash flow. The closer your business matches that description, the more options you have at the table.

The Bottom Line

Whether you plan to sell to PE, sell to a competitor, pass the business to a family member, or just keep running it—the checklist above is the blueprint for a more valuable, more profitable, less stressful business. Every item on the PE evaluation list is something that makes your company better to own, not just better to sell.