From time to time, the announcement of a closed deal in the news catches my eye. These deals can range from A to Z in terms of industries, acquirers, locations, etc. What they all typically have in common is that they highlight forward thinking on the part of the acquirer.
One thing that continually amazes me is the leading-edge thinking that equity firms use to determine the industry and/or businesses they are going to target. The folks managing solidly performing equity firms are usually thinking three to five years down the road and are anticipating what thewill look like then, not necessarily what it looks like right now.
A deal announced last week falls into this category. Alpine Investors (Alpine), a middle-market private equity firm based in San Francisco, announced that it had invested in Berkeys Air Conditioning and Plumbing, a leading provider of residential plumbing and HVAC services in the Dallas/Ft. Worth metropolitan area.
“Through a steadfast focus on technician training, a market-leading maintenance program aimed at keeping plumbing and HVAC systems in top shape, and a commitment to delivering great value to homeowners, Berkeys has created a distinguished brand reputation in the local market,” according to the press release.
To close the deal, Alpine partnered with Collin Hathaway, partner of Skylight Capital, to complete and help actively manage the investment. Hathaway brings to bear extensive experience in the plumbing and HVAC services industry through his involvement with and investment in Bonney Plumbing, Heating, and Air, a successful Sacramento-based residential service provider.
“Alpine is excited to leverage Collin’s industry and investment management expertise in order to build Berkeys into a leading home services company,” the press release stated. Hathaway responded, “After meeting with and evaluating hundreds of plumbing & HVAC service businesses, it is apparent that Berkeys is far and away one of the best managed and best positioned regionally focused home-service businesses in the country. I am very excited to be working with the Berkeys team.”
Berkeys Founder and CEO, Bill Stevens, will continue to run the business. Mr. Stevens added, “Collin and Alpine represent everything I’d want in partners: they are honest, have a long-term focus, and bring years of experience in growing small businesses to the table, which will be critical to Berkeys as we enter the next phase of growth. I could not be happier to have them both as partners.”
This is a classic example of a win-win investment scenario. Although details about the deal were not disclosed, it is clear that the equity firm is making this investment with the goal of using Berkeys as a platform company for future add-on or bolt-on. A platform company is an initial investment by an equity firm that is designed to give the firm an initial foothold in an industry. Going forward, they then “add on” to it, making additional acquisitions of players in that industry. Historically this has also been called a “roll-up.”
In this particular case, Alpine partnered with another equity firm, Skylight Capital, to close this deal. Skylight will also be providing active management, which allows Alpine to bring in experienced leadership in this industry to expand the platform they are building. Finally, the original owner has retained an equity stake in the new company, which will allow him to participate in a second liquidity event in a few years when the much larger entity (after several rounds of add-on acquisitions) is either sold or taken public.
You probably did not hear about this deal closing. It is the typical middle-market deal that happens nearly every day. In this case, it is clear that Alpine is looking for HVAC contractors (and most likely other related home-service contractors) that have survived the recession and the housing crisis. They are clearly expecting the HVAC industry to grow and will be looking for other, smaller add-ons to combine with this new platform.
Again, this is just one example of a recently announced deal. You may not be in the HVAC industry, but chances are good that there are active acquirers operating in your industry too. You may not even be aware of them because these transactions usually do not get press coverage.
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