Why I Love Investing In Essential Home Services

H vac mergers and acquisitions. Who's doing what? Mergers and acquisitions. 2024 deal flow. PitchBook has got all the, all the M and A activity. Bosch is acquiring Johnson Controls. These guys are selling to Copeland Venture, to Blackstone Private Equity. If Blackstone or blackrock is there, what does that mean? Right? Follow the money. And when you end up looking at businesses that are a little bit more expensive than you'd like, and you go, man, they're four times earnings or five times earnings, you know, you can't make as much profit. You can't make any profit in a five times earnings deal. That's why I say, if you're looking for cash flow, look for something that's owner operated, two to three times earnings that you're gonna expect to work sometime in a mountain. If you're a little bit more. You're looking for appreciation, and you're looking to sell a company for a lot of money, you're more interested in appreciation on that deal and buying a good company at a fair price. And so the technique would be, okay, it's four times earnings, it's still 25% return on your money. If it's five times earnings, it's 20% return on your money. Right? If you think if you're using all cash, but if you're paying, if you're using debt service, you're not making any profits at five times earnings. So we have to really evaluate the money math. And that's why engineering our plan in the beginning is the smartest step, right? So we can get through these things. So, four reasons for the boom. Here's the industry update. Here's what's happening. Here's the M and a review. There's plenty. Here's Capstone again. There are plenty of people. Here's the middle market. There are plenty of people with lots of opinions of where these transactions are going and why. In the commercial markets, these guys are buying companies for 5, 6, 7 times earnings. In the residential markets, they're buying this stuff for 5, 6, 7 times earnings. Right? They're different buyers based on commercial versus residential, same strategy. And so Hofstrauzer just closed on a deal in Indiana. And you know, at the end of the day, there's $1.3 million in free cash flow. It's five and a half million bucks, four times earnings. There's only a couple hundred thousand dollars in cash flow. When it's all said and done. The deal is, though, we beat every single private equity company out there and they had an offer from private Equity Company for $7 million. So what does that mean? There's 1.5. There's $1.5 million in profit upside just by reselling that company to a private equity company. So, you know, yes, it's making less cash flow because we paid more for it. But there's more demand on the other side for the exit to make more money. I mean, that's a million and a half dollar discount if we were to sell the company. And we didn't do anything different. We didn't do anything new in the business, right? So there are plenty of publications, there's plenty of information. There's plenty of stuff out there to do your homework on what's working and what's not. Okay? And every one of these categories is the same thing. So, I mean, you're simply using Google to find who's doing what in the transactions. We don't have to get a pitchbook and find who the principal is of the private equity company. Like, not until we're ready to sell that company. You're just not there, though, right? You're just not there. So let's go through some of these and why pest control already talked about salon suites, already talked about H vac, already talked about plumbing, electric. All of these essential services. These three categories alone are the most abundant leads in the market. If you were to run ads for anything, why? Because it's an essential service. Good market, bad market, New, bad economy. Good. Doesn't really matter if your electrical is acting up or you need to have lights installed outside or your panel is starting to smoke, right? Like, you're going to have to call the electrician. There's not much you can do. The plumbing toilet backs up in the middle of the night. Who are you going to call? Right? The guy that answers his phone first is the one that wins it. It is a. It is an essential service. It is a guaranteed service. I know Adam is working. Adam Dietrich is working on the electric company. Some of that stuff, the commercial stuff could be catered to. New build and new construction, you know, and so that's one side of the house. The other side is residential. I mean, you know, residential. Again, the difference between these two things and the advantages of why I like commercial is going to be bigger ticket items. $250,000 projects, residential. If I was to rewire this whole house, I know how much it cost me. It cost me $50,000 to rewire this whole house. But it was done in two days, I mean, two weeks. So the cash conversion cycle was much quicker for that electrician, right, to do a job in two weeks rather than to find it, quote it, bid it, get the materials, get the deposit, start the project, execute the project, get the money on it, close the project out. That could be 120 days. And so residential's got a shorter cash conversion cycle. Commercial has a longer cash conversion cycle, but you have bigger tickets. The margins are lower in commercial projects. The margins are higher in residential, the project volume is lower in residential, the project volume is higher in commercial. There's a trade off, right? A residential business or a commercial business could be doing $5 million and making $500,000 in profits. Commercial residential business could be doing $2 million and making $500,000. That's the difference between the two costs. It costs less capital to run that business, and the cash conversion cycle is much lower. Now, a business can do both. A business can do commercial and residential. You know, Adam's got a unique thing where he's got a lighting store, right? And that becomes a profit center for the business where he's distributing particular products to the customers. And so there's a number of things to consider when you're going through that process. Residential and commercial cash conversion cycles and operating capital that you need to run that business. All things I want you to consider. So Hvac, plumbing, electric, all very, very solid.