HVAC Acquisition Due Diligence: A Worked Example

Commercial HVAC and mechanical services is a favorite for buy-and-build: contracted maintenance, recurring inspections, sticky commercial customers. This is a worked example on one such target, where the financials broadly held up and two small things, found by holding the narrative against the schedules, changed how the deal should be priced.

Finding 1: page 6 says one thing, page 22 says another

The narrative claimed no customer was more than 15% of revenue. The customer schedule, sixteen pages later, showed one at 16%. A single point sounds like rounding. The issue is not the size, it is that the two numbers were never reconciled, which tells you how carefully the rest of the book was assembled. Concentration is a question to ask, not a reason to walk, but you can only ask it if you caught the gap.

Finding 2: the add-backs that quietly recur

The file carried about $145K of add-backs presented as one-time. Read the detail and part of it looked like spend that recurs on a two or three year cycle: repairs, software, a marketing push. On a business valued on a multiple of adjusted EBITDA, an add-back that recurs is not a footnote. It is real money coming off your return every year. The test is simple: for each add-back, ask what happens to it after close. If it comes back, it belongs in the run rate.

Finding 3: is the recurring revenue actually recurring

The target led with 58% recurring maintenance revenue. Recurring is the most abused word in a CIM. Confirm it means contracted, not habitual: read the agreements, check renewal terms and real churn, and see whether customers stay for switching cost or convenience. Project work dressed as recurring is the most common overstatement in this model.

The pattern

None of these kills the deal. Together they change the number, which is the point of diligence. You can explore this exact worked example, every figure traced to its source page, in the sandbox.

Frequently asked questions

What is the biggest diligence risk in buying an HVAC business? Usually revenue quality: confirming that "recurring" maintenance revenue is contracted rather than habitual, and that customer concentration matches what the narrative claims. Then normalize the add-backs.

Are HVAC maintenance contracts really recurring revenue? Only if they are contracted with real renewal terms and low churn. Read the agreements and check the retention, do not take the label in the CIM at face value. See the home services due diligence checklist.

How do I check add-backs on a home-services deal? Ask for the same line across three years. A cost that appears every year is not one-time, whatever it is labeled. Normalize anything that recurs back into EBITDA before applying a multiple.

See the cited, cite-or-cut diligence approach at Deal OS.