Private equity firms want in on the skilled trades industry. Some PE firms have started to add home-services companies, like those providing plumbing and HVAC repairs, to their portfolios because they’re seen as stable, future-proof investments. People will always need plumbers and appliance repair workers. But what does that mean for the business owners and the customers that these businesses once served?
Te-Ping Chen is a reporter at the Wall Street Journal. She joined “Marketplace” host Kai Ryssdal to discuss her piece on this new trend in private equity acquisitions. Below is an edited transcript of their conversation.
Kai Ryssdal: First of all, who’s getting bought up in these trades?
Te-Ping Chen: Well, there’s a lot of interest in the skilled trades, but it’s especially concentrated in HVAC companies, plumbing and electrical.
Ryssdal: Who’s doing the buying?
Chen: A ton of folk in private equity. So you might think about private equity as typically going after the bigger fish. This is a moment where we’re seeing a lot of companies, bigger and smaller, going after companies in the skilled trades, really, of all sizes.
Ryssdal: One does not usually hear though of private equity going after the skilled trades and these kinds of generally smaller companies, right? What is going on here?
Chen: Well, when we’re talking about the home-services industry, it’s really fragmented. We’re talking a lot of mom-and-pop shops. Companies that were started maybe by a worker who was out in the field before and started their own company, built it up, and now they’ve got a couple million dollars in revenue. Private equity companies that are looking to kind of build these bigger entities, what they can do is they can come in, they can build up starting with maybe one kind of anchor company, like a big plumbing company, and then add on lots of smaller outfits, and sort of roll them up. And the idea is you improve the margins and the efficiencies. You build these bigger, sort of more productive entities.
Ryssdal: What is happening to these companies after they get bought? I mean, do the owners stay on? Do the people who built these companies get to participate? Or what happens?
Chen: Well, there’s really a range, of course, but something that’s interesting is that in recent years, if we were talking, say, a decade ago, you would have seen a lot more owners of these companies who just wanted to sell, retire, and ride off into the sunset. What we’re seeing more these days is owners who actually want to stick around and build up their company. So, a lot of them do stay with the company, at least for a few years. That’s something that private equity likes, of course, for stability. Conversely though you do have owners who have stories about getting told that they would be able to stay and still have authority and decision-making power and have found that that’s not been the case. So, it’s hard to generalize, but certainly there is interest in owners to staying, and often that’s very beneficial to the buyers.
Ryssdal: One of the other things that’s happening here, though, is that the landscape of these industries is changing so quickly that that in your telling, in this piece, the owners don’t really have a choice. I want you to tell me about Dana Spears. She’s down in Florida, and ran an HVAC company.
Chen: So Dana Spears, she started building this company up, and she found, as many owners did find, especially during the pandemic, that there was increasing interest in her company. Folk knocking on her door wanting to buy her company, but she didn’t want to sell. She had employees that had been with her for 16 years, and she was worried, as many owners fear, that someone was going to come in, buy the company and essentially kick out a bunch of employees, hire cheaper ones, etc. And so, she didn’t want to sell, but eventually found that the people around her were all selling. Eventually, she really started to feel like she was being outgunned, because if you think about the folk who do have private equity come in and buy them, they end up with more money. They can negotiate better deals on equipment, fleet, things like health care, and sometimes can pay better wages. And so, for her, it was really just this feeling of this is kind of inevitable, like it might not be something she wants to do, but also, they are offering a lot of money right now, and it is an opportunity.
Ryssdal: Can we talk about customers here for a second? You know my local plumber who I’ve been calling now for 15 years. What’s going to happen to the service part of these service industries? Are consumers going to do better?
Chen: Yeah, that’s a great question. And I think the jury is still out. I will say there are certainly plenty of cases of customers who say, “Look, the company I use got sold, and all of a sudden they’re sending in service techs who don’t know as much.” Conversely, you’ll talk to customers who used a company that got sold and now they have faster response times. So as with everything, I mean, it’s going to be something of a mixed bag.
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