Selling To Private Equity Without Selling Out Your Mission

In late 2024, Siete was bought out by PepsiCo, and 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 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. 

 

What Happened? 

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. But 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. 

We in the HVAC industry are no strangers to this story. 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, in the letterhead at the top of maintenance contracts, and on 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. 

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 (PE). 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. 

Yet 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. 

 

Reconciling Values with Buyout Expectations 

Rob and his business partner had owned their mechanical business for 25 years. It was not a generational business, Rob did not have family in the business, and he needed the money from the sale to open up opportunities for that next chapter in his life. 

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. 

So when choosing to sell, the most important things to Rob and his partner were, first, a time-aggressive offer to close the deal and fully realize its results, and second, the buyer’s ability to maintain a similar culture.  

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.  

He also had non-negotiables: mainly, to preserve his sales team and commission plan that many of his employees had thrived under for over two decades. 

 

Defining Good vs. Bad Outcomes 

Going into the sale, Rob knew what a successful outcome would look like. It meant growth in several areas: the business itself, workforce size and training, product selection, and his 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 said there was only one outcome he wanted to avoid: a decision that negatively affected his employees. “Had we made a decision that would have negatively affected their lives … I would have been filled with regret,” he said. “It has always been my belief that we can be successful with others, not in spite of them.” 

 

Rob’s Outcome 

Rob visited businesses that had already been bought out or spoke with someone who had already gone through the acquisition process. When it came to multi-year buyout offers, he 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. 

Rob ultimately got the outcome he was seeking from the buyout, and he said his new partners have been willing to grow alongside Pennergy. He said the acquisition has strengthened the business while preserving its culture. 

“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.” 

By selling to this buyer, his non-negotiables were respected, he’s still running the company, and there have been no surprises since the buyout. 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. 

 

Avoiding a Race to the Bottom 

A common concern about private equity buyouts is that they can encourage 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 top piece of advice for HVAC business owners considering a private equity sale but hoping to avoid a race to the bottom. This was his response:  

“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.”