Deal Triage Report: Central Florida Residential HVAC

Summary

Recommendation: PASS

A 22-year-old family-owned reactive-only residential HVAC business in Lakeland, FL, with a retiring 64-year-old founder, no recurring revenue, aggressive SDE add-backs, and a missing customer concentration disclosure. Asking $2.4M (real estate included) against a true SDE that almost certainly sits at or below the buyer's $300K floor. This deal misses on the buyer's #1 stated preference (recurring maintenance revenue), likely misses on the SDE floor, cannot be cleared against the 15% concentration hard limit from available data, and presents a near-impossible 90-day owner-replacement timeline. The junior analyst's 38 is too generous — this deal fails on multiple hard criteria simultaneously and should be passed on absent a material price reset and disclosure breakthrough.

Inferred Profile

• Business: Family-owned residential HVAC, Lakeland MSA (central Florida)
• Tenure: 22 years; current owner age 64, selling to retire
• Headcount: 16 (9 service techs, 4 install crew, 3 office)
• Revenue (LFY): $2.8M, ~100% reactive (repair calls + new installs); no recurring contract base
• Broker-stated SDE: $480K | Normalized SDE estimate: $310K–$380K
• Asking: $2.4M, real estate included
• Implied multiple on normalized SDE: 6.3x–7.7x (indefensible for a no-moat reactive HVAC)
• Assets: 8 mixed-vintage (2019–2023) service vans + inventory + included real estate
• Customer concentration: undisclosed (assume elevated until proven otherwise)
• Recurring revenue: none

Fit Rationale

The buyer's stated preference stack is: (1) recurring maintenance-agreement revenue, (2) SDE $300K–$750K, (3) owner-replaceable within 90 days, (4) SBA-7(a) financeable, (5) Sun Belt geography, with a hard pass on >15% single-customer concentration.

This deal:

• Fails outright on #1 (recurring revenue) — the buyer's most strongly stated preference, with zero contract base after 22 years.
• Likely fails on #2 — normalized SDE of $310K–$380K hugs the bottom of the range; if the vehicle add-back gets haircut further, the deal slips below the $300K floor.
• Almost certainly fails on #3 — a 22-year founder with personal customer relationships and no contract infrastructure cannot realistically be replaced in 90 days.
• Cannot be cleared on the concentration test from broker-provided data; the absence is itself a signal.
• Passes on #5 (Sun Belt) and is theoretically SBA-7(a) financeable, though real estate inclusion and a stretched multiple on normalized SDE complicate the structuring.

Geography and surface-level financeability are not sufficient when the buyer's primary thesis (recurring revenue) and a hard exclusion (concentration) cannot be satisfied.

Deal Killers

1. Zero recurring revenue after 22 years. ~100% reactive revenue (repairs + new installs) directly contradicts the buyer's stated #1 preference. There is no contracted revenue base to underwrite — the revenue walks out the door with the founder's reputation and relationships.
2. SDE is materially overstated. Normalizing the $85K owner salary to a market-rate replacement GM (~$90–110K all-in), haircutting the $42K personal-vehicle add-back, and removing the $18K no-work family salary puts true SDE at $310K–$380K. That implies a 6.3x–7.7x multiple on a no-moat, reactive, single-owner-dependent HVAC business — indefensible.
3. Retiring founder + no contract infrastructure = non-transferable goodwill. 64-year-old owner with 22 years of personal customer and referral relationships in a business with no contractual stickiness. Revenue attrition post-close is a near-certainty without a substantial transition and earnout — neither disclosed.
4. (Added) Customer concentration cannot be cleared. Buyer has a hard 15% single-customer ceiling. Broker package omits this data; in a reactive HVAC with strong builder/contractor referral dynamics, concentration above 15% is the base-case expectation. Until disclosed and proven clean, this is a hard-criterion failure, not a yellow flag.

Yellow Flags

• Broker package deliberately light on concentration data — if it were clean, they'd lead with it. Assume 1–3 builder/contractor or referral sources drive disproportionate revenue.
• Real estate inclusion in $2.4M asking — appraised value and allocation unknown; mortgage status undisclosed; SBA structuring implications unclear.
• Mixed-vintage van fleet (2019–2023) in Florida heat — potential hidden replacement capex; maintenance records not provided.
• $42K personal-vehicle add-back — expect lender/buyer haircut; signals the broker is padding SDE.
• 9 service techs in a tight Florida HVAC labor market — tenure, comp, and non-compete status unknown; losing 2–3 senior techs post-close is existential.
• Revenue mix (repair vs. install; homeowner-direct vs. builder-referred) undisclosed — new install revenue is lumpy and often tied to personal builder relationships.
• 22 years with no maintenance program built — either strategic blind spot or the customer base won't support it; both are bad signals.
• Owner transition and earnout terms undisclosed — a 64-year-old retiree may not commit to a meaningful 12–24-month transition.

Questions for the Broker

1. Customer concentration — hard gate. Provide top-5 / top-10 / top-20 customer and referral-source revenue concentration for each of the last 3 years. Identify which of those relationships are personal to the seller and whether any single customer or referral source exceeded 15% of revenue in any of those years. We will not advance without this.
2. Revenue mix and trend. Full 3-year P&L plus current YTD, broken out by (a) residential repair/service, (b) residential new install, and (c) any other category. For new installs, what percentage originates from homeowner-direct calls vs. builder/contractor referrals, and which specific builders/contractors are personal to the owner?
3. SDE normalization — line by line, with documentation. (a) What does a market-rate replacement GM/operator cost in Lakeland for a 16-person HVAC shop, and what is the gap to the $85K seller salary? (b) Provide mileage logs and business-use documentation supporting the $42K personal-vehicle add-back. (c) Confirm in writing that the $18K family member performs zero operational or customer-facing work, and confirm their employment will terminate at close with no severance liability.
4. Real estate. Provide appraised value, current mortgage balance and terms, property tax basis, and the seller's allocation between real estate and business goodwill within the $2.4M asking. Is the seller open to a real-estate-excluded transaction or a lease-back structure?
5. Owner transition and earnout. What specific transition commitment will the seller make (duration, hours per week, scope)? Will the seller agree to a 20–30% earnout tied to year-1 and year-2 revenue retention thresholds? If not, what is the rationale?
6. Why no maintenance program in 22 years? Has the seller ever launched, attempted, or evaluated a recurring service-agreement program? If yes, what were the results and why was it abandoned? If no, what is the seller's view on why it was never built?
7. Technician roster. For each of the 9 service techs and 4 install crew: tenure, current total comp, EPA/HVAC license status, non-compete and non-solicit status, and whether any are related to the owner or have signaled post-sale intent. Has anyone given notice or hinted at leaving in the last 12 months?
8. Fleet condition and capex. For each of the 8 vans: model year, current mileage, maintenance history, and estimated remaining useful life. What is the expected replacement capex over the next 24 months?
9. Licensing, warranty, and legal. Status of the Florida contractor license (CAC) — who holds it, and what happens at close? Any open warranty claims, callback liabilities, customer complaints filed with DBPR, OSHA matters, employment claims, or pending/threatened litigation?
10. Working capital and inventory. What level of working capital and parts inventory is being delivered at close, and how does that compare to the trailing 12-month average?

Recommendation

PASS

This deal misses simultaneously on the buyer's strongest stated preference (recurring revenue), likely misses on the SDE floor after honest normalization, presents a non-transferable goodwill problem that is incompatible with a 90-day owner-replacement target, and cannot be cleared on the hard 15%-concentration criterion from the information provided.

A reconsideration would require all of the following:

• Verified customer concentration cleanly under 15% on every relationship,
• Real estate carved out or transparently valued such that the business-only multiple is ≤4.0x on normalized SDE,
• A seller-financed earnout of ≥25% tied to 24-month revenue retention,
• A documented 12-month minimum transition commitment from the seller, and
• A credible plan to launch a maintenance-agreement program funded out of the deal structure.

Absent that package, this is a job dressed up as a business at a private-equity multiple. Pass and redeploy diligence hours.