$3 billion later with SF&P Advisors’ Fred Silberstein

❝

The best compliment I get is when people say, “Fred, you have a great team around you.”

Fred Silberstein is the President of SF&P Advisors, one of the HVAC and Plumbing industry’s leading M&A advisors. Fred is a family man, a Steelers fan, and someone who’s personally been involved in almost 400 deals totaling $3+ billion in transaction volume over his career.

We talked to him about SF&P, why private equity is interested in the trades, what contractors get wrong when selling their companies, and more.

You seem to know a lot of people in the HVAC industry. How?

I started my career at PwC, but got exposed to M&A and realized I liked it. In 1998, I got recruited to an HVAC consolidator called Blue Dot Services (Blue Dot) — this was during what I called the “first gold rush.” I got to buy and sell companies; when I joined, we were at $75 million and we grew it to about $350 million before we started selling the individual assets.

A couple years in, I talked to my boss about my future there, and long story short, I left to start SF&P, which was officially born on January 1, 2001 — with Blue Dot as my first client. The industry’s small; everyone knows each other. Some of the more meaningful transactions in my career were some of these guys who bought companies from the Blue Dot fire sale twenty years ago.

Some SF&P highlights?

In 2015, we sold a business in Atlanta, GA called Coolray which became part of the Wrench Group. Ken Haines was the majority owner of Coolray and he’s been the CEO at Wrench since the transaction took place. In 2016 and 2017, we did the Dauenhauer Plumbing transaction with Trivest, which became the platform for Turnpoint, and we did the Horizon Home Service deals. In 2018, we did the Goettl transaction, and in 2019, we worked with Alpine Investors (original folks behind Wrench) on their next HVAC/Plumbing platform — Apex. Apex started with Best Home Services in Southwest Florida.

At the height of the market in 2021, we did 46 transactions; the next year in 2022, we did 40. We ended 2023 with 25 deals, and forecasting-wise, it’s looking like we’ll do around 30 deals this year.

Why is private equity so interested in the trades?

They’re good cash-flowing businesses, and PE sees opportunities to come in, professionalize, and take advantage of scale. In addition, infrastructure is aging so there’s always an opportunity to upgrade systems either in homes or in commercial properties.

The industry will always have the chuck in a truck that doesn’t have the same overhead to try to undercut pricing, but that’s not a sustainable business model. So the middle class of contractors have to decide if they want to compete against the 800-pound gorillas or join them. And I think at the right price, it becomes attractive to join. There are certainly scale benefits of joining larger organizations.

Plus, imitation is the sincerest form of flattery. People see others doing roll-ups and selling at a higher multiple than they paid — it’s the perfect buy-and-build model. Also, millennials want people to fix their stuff — they’re not tinkering with the fixtures and equipment — so when something breaks it needs to be fixed, and fixed in a professional manner. Customers value a great service experience.

What do you see, good and bad, when advising on deals?

The #1 mistake I see contractors make is selling without an advisor. A lot of guys have no idea what their business is worth. There are a lot of professional deal makers that are obviously in it to cut the best deal possible and at the lowest price. At SF&P, we run competitive processes where multiple people bid for the company which allows us to push outcomes for our clients. Also, at minimum, contractors should understand that it’s a multiple times EBITDA. We like to add an A for addbacks — non-recurring expenses that will not be part of the go-forward business.

Buyers are always looking for a strong management team to support. If you’re building it right, you should be working on the business, not in it, and developing a team. And have a good service mix, too — construction is less desirable given its inability to sustain earnings.

Pros and cons for contractors considering selling to private equity?

A lot of folks say they’ll never sell, and then they hear that their buddy sold and he’s building a new house and has a new boat… and then it’s more appealing. Price point matters. At some level, you got a decision to make because the big guys are getting better pricing on equipment, software, etc — that stuff is real.

A pro is that there are scale benefits. Like during Covid, if you were Lennox, Carrier, or Trane, who are you gonna take care of the most … the guy that buys $500k or $10 million worth of equipment? It also provides succession and wealth planning. In other words, you’re being compensated for your life’s work, and taking part in a proper exit strategy for you to leave your business is part of a good succession plan.

Sometimes there’ll be a bad story, but for the most part, they’ve made money, they’ve been provided resources, and the mundane parts are off the business owner’s plate.

What are you interested in, personally?

My family. I have two kids, 8 and 11. It’s rewarding, it’s great, but it takes lots of time. My wife works in the business with me and does CFO and HR-related functions — she’s incredible. Also, I’m an avid Steelers fan; I don’t miss a game on the weekends.

What does work look like for you?

We’re based in Boca Raton, FL (except I’m not here in the summer because it’s too hot in South Florida), and there are 12 of us on the team — we have 2 CPAs that work remotely. The workweek changes and deals ebb and flow, but the team and I go at it each and every day to try to get deals closed and across the goal line.

The best compliment I get is when people say, “Fred, you have a great team around you.”

If you could have dinner with anyone in history, who would it be?

My dad. He passed away in ‘09 and he’s missed such fundamental things in my life, especially related to my family and kids (my oldest is named after him). While he saw the beginning of SF&P, he was not around to see the company that I’ve built and the success we’ve had since.  I’d love to be able to share life experiences with him that have happened over the past 15 years over dinner.