Well, as any, any of the listeners will know, there's just, there's, there's just this confluence of factors contributing to that. AI is the, the big one. But that is, but, but one of many, Pat.
Acquiring Minds
Product-Market Fit in the Trades: 4x in 2.5 Years
Episode
Excerpts · 431 segments · ~1:37:34 long
Short excerpts only — hear the full conversation on the publisher's site.
05:43 Pat's background and path to acquisition14:02 Search criteria and product-market fit thesis22:22 Commercial HVAC revenue quality28:51 Meeting seller Steve by happenstance38:27 Deal terms and working capital46:48 Seller note, collateral, no personal risk53:12 Ownership transition and growth via follow-up1:03:49 Licensing structure and no-SBA advantage1:26:11 Private equity competition in the trades
The speaking of this particular trade, of course licensing is usually a factor in trades businesses. Not always, but certainly in an H Vac business. How did that, how was that structure? What does that look like?
Yeah, so that's, that's a really important part of any kind of trade specific deal. Depends on what your state requirements are. Right. But in the state of Ohio, you do need, in my business, you need an H Vac license and a refrigeration license to do the work that we do.
The kind of, the catch is you have to have five years of experience working under someone that is a license holder and show five years of permanent jobs in order to get that license. Or I believe there's also kind of a cut the line if you have an engineering background where you can test, I believe after three years. But I didn't qualify for either of those.
Right. So I had to again know that I was buying a business and we were going to be okay from the licensing standpoint.
And Steve was grandfathered into having a H Vac and refrigerations license years ago and was super gracious on like understanding that this is obviously a need and that if I, you know, was to acquire this business that he would let me use the license for that five year period to allow me to go and test or use it, you know, as long as I needed it essentially to go and test.
And so that was a really big point of contact or point of conversation in those coffee chats was how that would work. And I felt like it was kind of a good give and take because I had this 90% seller note that I owed him. But also it'd be a lot harder for me to deliver that too if I didn't have that license.
Right. And he obviously wanted to see that 90% of that seller note. So it was kind of like we were both benefiting from him being able to retire, step away. I could still use his license and as a result of that, I could still make those payments to him.
Right. So it was a win win in that regard. Today we continue to use his H Vac and refrigeration license and I do hope to test next year for my license and see how that goes. But yeah, the licensing is a huge part of this commercial H VAC and refrigeration business.
A few things to call out on this Pat, which is important. The fact that you didn't do an SBA loan here is what enabled this. Because if you were to do an SBA loan to buy this business, the current rules say that he, he, I mean the SBA doesn't want the previous owner to stay in the business, so he would have to be an owner of the business.
He would have to roll some equity for his license to remain in effect. I believe I have this right. I should know this.
And if he was on the cap table, then that also meant that he was going to have to personally guarantee your SBA loan, which this is a new rule change from last year which effectively just kills that whole structure because some seller owner is not going to want to have to personally guarantee your have personal guarantee hanging over there.
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