Owned and Operated - Episode #155: Merging Cultures – Challenges In Home Service Acquisitions

Release Date: December 10, 2024

In episode #155 of the "Owned and Operated" podcast, hosts John Wilson and Jack Carr welcome Nathan from Bart's Heating and Air to discuss the complexities and strategic considerations involved in growing a home service business through acquisitions. This detailed conversation provides valuable insights into the challenges of merging different company cultures, balancing acquired and organic growth, and establishing robust operational frameworks to support rapid expansion.

1. Introduction to Bart's Growth Journey

Nathan begins by outlining Bart's Heating and Air's ambitious growth trajectory through strategic acquisitions. Starting in late November 2021, Bart's acquired its first HVAC company in the DFW area, increasing its revenue from $1 million to $1.7 million in the first year—a 70% growth rate.

Nathan (00:29): "We're at like a 65, 70% kind of acquisition percentage and then the other 30% plus organic growth."

This momentum continued with a second acquisition in January 2023, adding another $1.2 million in revenue and bringing the total to $3.6 million. By 2024, Bart's completed a third acquisition, pushing revenues to approximately $5.8 million and setting sights on a $10.5 million run rate.

John (02:10): "That's 70% growth."

2. Strategic Rebranding Decisions

A significant point of discussion is the strategic decision to rebrand acquired companies. Initially, Bart's assimilated all acquisitions under the Bart's brand. However, the latest acquisition, Christmas Air, presents a different scenario due to its larger size and strong market presence.

Nathan (03:13): "We're going towards the Christmas Air name."

John supports this move, emphasizing the importance of maintaining brand integrity and leveraging the established reputation of Christmas Air.

John (03:13): "It is the right move... it's the right decision."

3. Integration Challenges: Culture and Operations

Integrating new companies often brings cultural clashes and operational hurdles. Nathan highlights that while the first two acquisitions were smooth, the third posed unique challenges, particularly around differing compensation structures and entrenched operational practices.

Nathan (07:40): "We have been empowering the GM with a lot of time and decision making ability."

Jack Carr shares his own experiences, noting that his company lost almost an entire plumbing business due to cultural misalignment.

Jack (22:35): "We lost almost the entire plumbing company we bought because of this issue right out the gate."

4. Balancing Acquired and Organic Growth

John reflects on his company's shift from a 70% acquired and 30% organic revenue ratio to the opposite, contrasting it with Bart's consistent acquisition-driven growth. Nathan expresses a desire to eventually increase the proportion of organic growth as the company scales.

John (05:32): "We are now the opposite of what you guys are. We're 70% organic and 30% acquired."

Nathan (29:44): "We're trying to figure out that lead gen machine and really build that at the same time we can flip that script a little bit."

5. Financial Strategies and Banking Insights

As Bart's Heating and Air grows, financial strategies must adapt. Nathan discusses how reaching $5 million in EBITDA opens doors to conventional debt, complicating credit terms and vendor relationships. He shares his experiences with renegotiating vendor contracts to leverage increased buying power.

John (31:09): "At 5 million, that's the easiest way to think about it."

Nathan (34:43): "The goal is 100 million plus over the next seven years."

6. Future Plans and Long-term Goals

Looking ahead, Bart's Heating and Air aims to reach $100 million in revenue within ten years by expanding geographically and adding new services beyond HVAC. Nathan emphasizes the importance of building a robust foundation to support scalable growth.

Nathan (34:43): "The goal is 100 million plus over the next seven years."

7. Tips for Successful Acquisitions

Nathan offers practical advice for other business owners considering acquisitions:

• Establish Credibility: Successfully closing initial deals builds trust and attracts further opportunities.
• Maintain Transparent Communication: Clearly communicate intentions and changes to both employees and customers.
• Leverage Supplier Relationships: Suppliers can be a key source for off-market deals and credible introductions.
• Honor Legacy Brands When Beneficial: Respecting the established brand can ease integration and maintain customer loyalty.

Nathan (46:35): "Our pitch is four things: fair terms, taking care of people, customers, and honoring legacy."

8. Leveraging Supplier Relationships for Acquisitions

Both Nathan and Jack emphasize the importance of supplier relationships in sourcing acquisition opportunities. Suppliers often have insider knowledge of businesses looking to sell and can provide invaluable leads that are not publicly listed.

John (50:48): "That's where we get most of ours as well."

9. Conclusion and Key Takeaways

The episode wraps up with reflections on the future of acquisitions for Bart's Heating and Air and how they plan to navigate ongoing integration challenges while striving for continued growth. The hosts encourage listeners to utilize their networks and maintain a clear strategic vision when considering acquisitions.

John (51:34): "Find out soon. If people want to connect with you and hear more, how can they find you?"

Notable Quotes with Timestamps

• Nathan (00:29): "We're at like a 65, 70% kind of acquisition percentage and then the other 30% plus organic growth."
• John (03:13): "It is the right move... it's the right decision."
• John (05:32): "We are now the opposite of what you guys are. We're 70% organic and 30% acquired."
• Nathan (07:40): "We have been empowering the GM with a lot of time and decision making ability."
• Nathan (46:35): "Our pitch is four things: fair terms, taking care of people, customers, and honoring legacy."
• John (31:09): "At 5 million, that's the easiest way to think about it."

Key Takeaways for Listeners

• Strategic Acquisitions: Focus on acquiring companies that align with your strategic vision and consider rebranding when beneficial.
• Cultural Integration: Prioritize cultural alignment and clear communication to ensure smooth mergers.
• Balanced Growth: Maintain a healthy balance between acquired and organic growth to ensure sustainable expansion.
• Financial Adaptation: As your business grows, adapt financial strategies to leverage better funding options and manage vendor relationships effectively.
• Supplier Networks: Utilize existing supplier relationships as a primary source for acquisition leads and credible introductions.

For more insights and resources on growing your home service business, visit www.ownedandoperated.com.

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