My family tries to live as holistically as possible. We make a lot of our own food and stay away from things that are heavily processed and have a lot of additives, preservatives, and common allergens. That means we like to buy snacks from independent brands that are transparent about their recipes, and one of our favorites in recent years was Siete chips, tortillas, and taco shells.

But Roman, what does this have to do with HVAC? Patience… you’ll see in a minute.

Siete has a neat story. It was started in the mid-2010s by a Mexican-American family of seven (hence, siete!). The founder had autoimmune diseases that were aggravated by grains and dairy, so she and her brother began making tortillas with almond flour. This recipe allowed her and many other people like her to enjoy Mexican and Tex-Mex cuisine without getting sick. 

One family’s genuine care for human health was what helped Siete get off the ground and become part of many other families’ pantries—including my own.

In late 2024, Siete was bought out by PepsiCo, a giant conglomerate, for $1.2 billion. Over the past several months, my wife and I have noticed that the quality has gone way down. The tortilla chips are smaller and just don’t taste the same. And then we saw that the ingredients had changed; there are new preservatives in some products and cassava starch instead of whole cassava flour. PepsiCo has gone the “processed food” route with Siete, much like their other famous (and highly profitable) chip brands: Lay’s, Tostitos, and Cheetos. 

What Happened? 

Siete began as a family-owned company on a mission: to create a way for people with food sensitivities to eat and enjoy Mexican and Tex-Mex cuisine and to “help more people feel included at the table.” That quote is still in the “About” tab on their website, but the brand has already seen small changes to its formula—who’s to say it won’t undergo other changes that don’t align with the original mission?

PepsiCo didn’t just buy the recipe and the right to make money from it. They bought the trust that came with the Siete brand. Siete’s logo is still the same. The website still has a unique, warm, intimate feel to it. But PepsiCo has no connection to the family, community, or mission that made the company what it was. PepsiCo’s mission is to make Siete’s products as profitable as possible. Changing ingredient formulas, especially in ways that make the products cheaper to manufacture, and raising prices are the ways to do precisely that.

How’s This Relevant to HVAC?

Siete is just one example of what happens when a large conglomerate buys out family-owned companies. We in the HVAC industry are no strangers to this same story, though it has mostly been through conglomerates with private equity-backed funding (whereas PepsiCo is backed by public shareholders, mostly from firms like the Vanguard Group and BlackRock). In any case, a mom-and-pop business that once stood alone becomes part of a much larger portfolio. The new conglomerates swap “ingredients” in the business formula, and those changes come with consequences.

How Do Private Equity Firms Work?

Private equity (PE) firms often rely on a tactic called “leveraged buyouts.” In a nutshell, that means they pay a relatively small percentage out of pocket but mostly use money they don’t already have; they use collateral from the business to finance loans used to purchase the company. In other words, the debt needs to be repaid with earnings from the company—money that could’ve gone toward improving the business. Sometimes, the business can meet the metrics required, and sometimes it cannot. When it cannot (and even when it can, but the firm plans to sell in a few years and wants to maximize value at all costs), that’s when corners start getting cut, and prices start going up to compensate. 

The goal of PE buyouts is usually to sell the group of companies for an even bigger profit in a few years. The consolidation and “ingredient swaps” are usually much more rapid and high-stakes (for the firm, at least) than when a company like PepsiCo buys a brand for its market share over the long haul.

When large PE-backed conglomerates leverage buyouts on mom-and-pop HVAC businesses, they don’t buy the business model. The business model is just one of the “ingredients” that they swap out and replace with something else that’ll cut costs and boost profits (such as by centralizing back office functions). But as with PepsiCo and Siete, PE firms buy the trust that comes with the name and capitalize on that.

Trust as Currency

When you see local HVAC companies bought out by conglomerates backed by private equity funding, do you see the buyers’ names on the trucks? Of course not. 

Johnny Joe Schmoe’s Heating & Air is on the stickers on customers’ air handlers, is in the letterhead at the top of maintenance contracts, and had a booth at the town’s annual barbecue festival. Why would anybody change it if the brand already has a clear, trusted identity and a loyal customer base?

Just like PepsiCo in the Siete story, private equity firms buy out HVAC companies with a well-established brand identity. They buy the trust and sell it at a premium. That trust was built in alignment with the original company’s mission.

The Importance of an HVAC Business’s Mission

If you currently own an HVAC business, why did you start? If you want to own an HVAC business, why? While money and having more control over quality and day-to-day operations are definitely valid, I’ll bet that you partially did it (or want to do it) because you care about the people in your community. Those people are your neighbors, the people at your church, local business owners, and even family members (just like Siete). 

Small HVAC businesses become successful because of the high level of care and service they put into their communities. The techs are informed, skilled, and maintain high standards. To a PE firm looking to expand its portfolio, that trust is usually just free marketing within a community, not a legacy to carry on once it takes over. 

Is Private Equity Ever the Answer?

As with anything, the issue of PE isn’t black and white. There are some situations where someone might see selling to private equity as the best choice for their specific circumstances—and I can’t say I blame them.

When There’s No Clear Business Successor

Many of us got into the trade because of our parents. There are so many cases where someone’s dad had a business (which he may have inherited from his dad) and brought his kids into it so that they could take it over someday. Maybe you’re a current or aspiring business owner who plans on getting your own children into the trades to take over when you want to retire. 

At Kalos, there's been a very clear path to succession (more on that in this podcast), but what about when your children have other plans in life, and you want to support their dreams and ambitions? If nobody else wants to buy the company except for PE firms, what are you supposed to do? Work until you physically can’t anymore and close up shop? Let it go under?

Most of the people reading this are in the USA. Part of the American dream is to build something you’re proud of and then, after so many decades of building, to hang your hat on it and enjoy retirement. Selling the business is an understandable next step, even if the most likely buyer is a PE firm.

When the Business Outgrows You

The same goes for when you have a business that has grown so much and feels overwhelming. You could always hire other people to help run the business, but there is plenty of risk and investment needed to do that. 

In a case where running the business only stresses you out, and there’s no joy to be found in it, do you just shut it down? Keep trying to run the business under an insane amount of stress? Hire managers, directors, and even executives, even when you don’t really know how to integrate them into your business smoothly?

Sounds like the business could benefit from being under the control of an entity that can manage the growth. It makes sense to have a larger company step in and purchase the business. 

What Would You Do?

If you were in one of those situations, what would you honestly do? It’s so easy to go behind a computer screen and type about how we’d take our company to the grave before handing it over to private equity. But when you have to make a choice between making the most of the final chapter of your life with grandchildren and pursuing hobbies or continuing to run a business, the choice becomes more complicated (unless you don’t have grandchildren or hobbies and are married to your business, I guess).

I’ve known some people who were in situations where they didn’t want to run an HVAC business anymore, so they sold to PE firms and couldn’t be happier. 

No, you didn’t misread that. 

A Real Account of Selling to a Private Equity Firm

If you feel like you have no choice but to sell to private equity, there are ways to do it that still consider the long-term well-being of the business’s employees and the community it serves. 

I personally know someone who sold his company to private equity. Rob Lowry has given me permission to share his story of selling his VRF-centric HVAC business in the Philadelphia area, Pennergy Solutions, in July 2024. To this day, he is satisfied with his decision to sell.

The Motivation to Sell

In Rob’s case, he and his business partner owned their mechanical business for 25 years. It was not a generational business, and he did not have family in the business, so there was no emotional or familial attachment to the company. Neither one had a means to retire, either, and it was time to explore options that could open up opportunities for that next chapter in their lives.

Rob and his partner had many offers to purchase the business, and there was a lot of variation in those offers. When choosing to sell, the most important things to Rob and his partner were the buyer’s ability to maintain a similar culture and a time-aggressive offer to close the deal and fully realize its results. As Rob put it:

“Just because you are offered a certain package, there are always time stipulations and performance metrics that must be maintained to see the full extent of the offers… We went with the package that we felt provided us with a similar operating environment, culture, and the most aggressive time offer to fully close the deal, aka put their money where their mouth was.”

Reconciling Values with Buyout Expectations

Rob’s main motivator for getting into the HVAC business was financial, but not in the way you might think. If his business could earn money, his employees would be able to build better lives for themselves, get better training, and sell solutions with better long-term value and reliability for the customers. In turn, better training and product offerings helped the customers.

He knew he needed a buyer who understood the value his company could bring to the conglomerate, especially in a niche market like VRF systems, and simultaneously promise minimal interaction in the business’s day-to-day operations. 

Choosing a Private Equity Buyer

In Rob’s experience, there is no “magic 8-ball answer” to choosing a buyer with ethics and company integrity in mind. Every offer and every buyer has its benefits, drawbacks, and public perception, though one thing to be wary of is a buyer who wants to rush to close the deal. The process of vetting each buyer is slow and requires research.

One of the things Rob did was visit businesses that have already been bought out or speak with someone who has already gone through the acquisition process. Being able to witness those company cultures and get those firsthand accounts helped paint a realistic picture of expectations if he were to choose to move forward with a particular buyer.

And then there were a few non-negotiables that Rob required of the buyer, mainly to preserve his sales team and commission plan. Many of his employees entered the business straight out of college and trade school and were accustomed to and content with the business’s structure that had held steady for over two decades. Had a buyer expressed an intent to change that or fold the company into another organization, or had he gotten the impression that there would have been surprises along the way, he would have refused the sale. 

When it came to multi-year buyout offers, Rob knew it was critical to understand his own business’s performance metrics and how that might align with the offer. If a seller, like Rob, knew that their company could not realistically meet the metrics in the buyout offer, then selling would not have been a wise financial decision. (What corners would have to be cut to meet those metrics? Not a good position to be in, and it’s not good for the industry, either.)

Defining Good vs. Bad Outcomes

Going into the sale, Rob knew what a good outcome would look like. A “good” outcome would’ve meant growth in the following areas:

• The business on a larger scale
• Workforce size and training
• Product selection
• Rob’s own understanding of business sales and acquisitions

The goal was to have a means to invest in continuous growth on multiple levels, not to make a quick buck. He also knew a winning situation would require honesty and accountability from both the buyer and the seller.

Rob only had one real condition that would make a “bad” outcome, which was dissension among his employees:

“Had we made a decision that would have negatively affected their lives… I would have been filled with regret. It has always been my belief that we can be successful with others, not in spite of them.”

Rob’s Outcome

Rob ultimately got his “good” outcome from the buyout, and new partners have also been willing to grow with Pennergy since then. As for the company and culture, here’s what he had to say:

“I am still running this company, but now I have the benefit of a much stronger group behind me that can offer better equipment lines, better cooperation across the industry, and business advice I was learning on the job. Our PE partner is not just buying HVAC firms but many different firms that all work in the HVAC environment to allow for a self-sufficient atmosphere with a significant level of cooperation.”

In a nutshell, selling to this particular private equity buyer ended up having a positive effect. His non-negotiables were respected, he’s still running the company, and there have been no surprises since the buyout. But of course, as the seller, Rob did his due diligence of “reading the fine print” of each agreement and requesting other people with relevant experience to read it carefully and tell him their thoughts. He recommends that everyone in his position do the same.

Rob’s Advice to Avoid a Race to the Bottom

As I said earlier in this article, and as many in this industry have expressed, the big concern with PE buyouts is that many of them enable a race to the bottom. But Rob wanted to see growth in the quality of his business, and the backing of a PE firm enabled him to do that.

I asked him for his #1 piece of advice for HVAC business owners who are considering selling to PE but don’t want to contribute to a race to the bottom. Here’s his answer:

“Any process worth venturing is not going to be fast and should be deliberate. The only thing in life that is constant is change, and as the market changes, we have to do what we feel is best for not only ourselves but those around us. When negotiating, go to the offices of firms that are already in the organization: read the culture, read the faces of those doing the work. There is nothing written that says work has to be miserable, so make it great and make sure you go somewhere where you can keep your voice, should this be what you want.”

What if You Work for a Company Bought Out By Private Equity?

Some of you may have already been through this: you’ve been working at a company that you really like for several years and have probably helped train some apprentices, set standards of service, and launched some service programs, and then boom! It gets sold to a private equity firm. 

That can be a tough situation because the techs are the ones with no say. While I can’t tell you exactly how to navigate this situation, the best thing I can recommend is to pay close attention to how the company culture changes and make a decision based on your values. 

If the company keeps a lot of the programs that have worked and doesn’t push sales tactics that make you queasy, like in Rob’s case, then there isn’t really a reason to jump ship (unless you really want to). If you’re having your needs met, and the customers are still having theirs met, that’s still good. Why change if you feel comfortable and like your values are still aligned with the company?

It may be time to bolster your resume and look elsewhere if you feel that your contributions, especially your diligence and craftsmanship, aren’t appreciated. If sales incentives feel icky to you, or you notice that the company doesn’t really care about meeting its customers’ (or employees’) needs anymore, then do you really want your knowledge and skills to support a mission you don’t believe in?

The choice is deeply personal, and I can’t make it for you. I can only encourage you to keep your personal needs and morals in mind.

Bottom Line: Private Equity Isn’t Going Away

For a person who works for a mom-and-pop company, hearing that it has been purchased by a PE-backed conglomerate might be devastating news. The reputation of private equity in the industry is the way it is for a reason. But owners who are looking to sell their HVAC businesses CAN have a say in how they pick their buyers. That means reading the fine print of all agreements, understanding the company’s value and being realistic about its finances, and knowing what “good” and “bad” outcomes will look like for the people in the business and the community. 

If you find yourself in the position to sell and don’t want to contribute to that race to the bottom, take your time to understand what’s working for the business and ensure that the buyer will respect those. Assess the cultures of other firms that have been bought out by particular buyers and ask yourself if that’s what you would want for your company. 

In the end, there are many human beings who are affected by these buyouts: employees, neighbors… not just the seller who receives the money. Even if thinking about the far-reaching consequences for the industry doesn’t concern you, think about the people.

—Roman Baugh