EP #16: How A Trade Business Scaled And Sold

A family-run plumbing leader just closed a $14M sale—and the real story isn’t the number, it’s the blueprint behind it. We open the hood on how a commercial contractor in South Florida turned disciplined operations, clean financials, and smart deal structure into a win for founders, successors, and their new private equity partner.

We start with the hard truths of valuation. Commercial construction can scale fast but swings hard when projects slip, so buyers discount uncertainty. That’s why this team’s meticulous books, reliable revenue recognition, and documented backlog mattered more than hype. When a wave of delayed starts dragged the trailing twelve months, the deal didn’t die. It evolved—shifting to a mix of cash, seller financing, earnouts, and rollover equity that kept the headline value intact while protecting both sides. Along the way, we unpack why “go ugly early” during diligence saves time, trust, and multiples.

There’s a reason private equity is racing into the trades. AI can optimize bids and schedules, but it can’t install pipe or trench a site. That hands-on moat, paired with fragmentation and roll-up potential, is drawing serious capital. The catch is labor. Without a bench of skilled technicians and strong supervisors, even the best backlog stalls. We talk leadership layers across divisions, owner roles post-close, and how a cultural fit with the buyer can be worth more than the highest upfront check—especially if you’re aiming for the second bite when the platform exits at a higher multiple.

If you own a service business and think a premium exit is out of reach, this conversation will change your mind. We map the steps: invest in accounting that approaches GAAP, document SOPs, close your months on time, disclose issues early, and plan your exit the day you open your doors. Ready to turn an illiquid asset into a personal balance sheet you control? Hit play, subscribe for more real-world M&A breakdowns, and tell us: what’s the one change you’ll make this quarter to boost your future multiple?

Transcript

Welcome And Deal Headline

SPEAKER_00 0:01

Welcome to the South Florida MA Advisors Podcast, your trusted MA team. Here's your host, Russell Cohen.

Why Southwest Plumbing Stood Out

SPEAKER_01 0:13

Hello, hello, everyone, and welcome back to another installment of the South Florida MA Advisors Podcast. I'm your co-host, Jeremy Wolfe, joined by none other than your host, Russell Cohen. Russell, always a pleasure, my brother. Great to see you, Jeremy. It's been a while, but we're back, and uh 26 a great year. Yep. And we are better than before. And by by the way, congratulations. Uh recent recent sale of an eight-figure deal. Don't run across those every day. So no doubt. Right. You don't come across those too often. So let's start at the top, right? Southwest Plumbing just sold for 14 million. What would you say immediately stood up stood out about this business?

SPEAKER_02 0:56

You know, they were uh they were basically the uh the leader uh in southern Florida and Southwest Florida for commercial new construction projects. Uh great team, uh three owners, uh consisting of uh the I guess the father as the leader, the son, and then a long long-term friend who are partners. And the the father was heading into retirement in the in the you know in the next couple years, and the seller wanted his son, who didn't want complete responsibility, he wanted the ability to grow to the next level, but also have someone in in his place or replacement so they can grow and build better infrastructure and uh and be a sounding board. So they decided to go the route of putting the business for sale and seeking out a private equity investment.

Valuation, EBITDA And Multiples

SPEAKER_01 1:57

Hmm. No, so when you when you first dug into this deal, is this something when they when they came to you, did they have a pretty clear picture um of the valuation of the company, or is this something that you know when you first looked under the hood, what kind of indicated that this this could be north of uh or this could be in the eight-figure range?

SPEAKER_02 2:15

Well, when we uh started taking a look at the financials, uh which were extremely clean, uh it showed an extremely great EBITDA, uh, which is another term for earnings basically. And uh and we knew that we would be able to get a certain multiple of earnings, basically, because in the construction world it's nothing's residual except the contracts, you know, yeah when you complete each project. So we kind of had a kind of a limit where we pretty much where we could probably get on the business. Um where comparably, uh if you had if if if you had a recurring, guaranteed recurring revenue, you probably would have gotten the owner would have gotten a lot higher multiple. Uh, but the multiple was fine. Uh, they were extremely happy with it. And uh, you know, it it was a step for taking some liquidity out of the company and you know, taking it off their balance sheet, the corporate balance sheet, and moving it into their personal balance sheet. So that that was a very important first step uh for the uh the main owner of the business.

SPEAKER_01 3:21

Now you mentioned construction. Is it typical um that these multiples are similar per you know per type of industry that you're working in, or does it vary just depending on the business?

SPEAKER_02 3:33

So in this uh particular with construction, uh, which is you know, you're gonna look at roofers, plumbing, HVAC, all different types of trades. You know, we got the the owner of about a 4x multiple. And what the reason why it didn't get higher is because they're dealing with new commercial construction, which you know, if the economy takes the wrong turn, uh you go into like a 2008 style recession, there's a bigger risk that those type of projects might slow down comparably if you're a plumber, regular plumber servicing residential or commercial contracts. That if something if it's going to break, it's irrelevant to the economy. It breaks and you got to fix it. So, you know, anything that's dealing with large projects, the multiples will not get uh will not get crazy.

SPEAKER_01 4:27

Yeah, that makes sense because the residential, you have more of an existing client-based recurring recurring business as opposed to these big new projects that are usually one-offs for the most part.

SPEAKER_02 4:36

Right. Well, the you know, it's it's really with the general contractor who's hiring the the plumbing firm. So there's a residual effect of it, but like I said, it it's it's larger projects, take longer. Projects take longer to start, and then it does have a long, a decent, you know, it could be three months, could be a year to finish the project, depending how big it is. Um, so the bandwidth of the company, uh, if you take on too many projects, then you you might have a hard time staffing it, the timing of the projects and everything.

Why PE Is Chasing The Trades

SPEAKER_01 5:09

Yeah, right on a lot of a lot of moving parts for sure. Um obviously every deal is different and there's different things that that drive the value of a business. In this particular deal, what were some of the biggest drivers of the value? Uh, I'm sure that uh if I had to guess, AI probably played a big factor in the in the driving the value.

SPEAKER_02 5:28

Um well, we're in the in the uh private equity world, mergers and acquisitions, the uh the buyers are they understand that in it's a changing world in the next three to five years, AI is gonna eliminate a lot of white-collar jobs. So in the past few years, the these private equity groups have been moving towards the trades. And it's a safe, believe it or not, it it is a safer investment for them because these trades are gonna be around no matter what. Uh so you know the manual side of the business, uh, you know, 10 years ago they wouldn't touch this type of business, and now now they are engaging and and now they want all different types of contracting type businesses. So uh that you know that's one of the driving reasons. Uh, in this case, uh, this private equity group, this was their first entry into the plumbing. Um, and they they had a high aspirations to buy 25 companies. Now it's very difficult to find 25 companies to buy in five years, but you know, this was the first one, so they had to get this one done in order to get to two, three, and four. If you don't buy number one, you you know, you don't launch. So it was it was vital. It was vital for them to see this deal through um because it was launching their private equity group.

Leadership, Structure And Labor Gaps

SPEAKER_01 6:50

The the first of many, my friend. Yes, no doubt. Yeah, no, I I've definitely heard more and more about the trades uh having some kind of added cushion when it comes to the implementation of AI because AI is taking a lot of the technical jobs, but we're not quite at a level yet where it could kind of take in these technical hands-on type type jobs like plumbing in these industries. So there's uh an added layer of protection in that industry, at least I've heard.

SPEAKER_02 7:14

Yeah, I mean, AI is gonna help them become more efficient um in many different angles of the business. It won't take over the business because AI can't dig a hole and it can't it can't it can't manually do the work that they do. So um so I'm gonna ride that wave. I'm gonna try to ride.

SPEAKER_01 7:33

The robots are coming, Russell. Just just wait quicker. I don't know if I'll be alive to see it all. You know. So we we talk a lot about um, you know, the owner being tied up in the operations of businesses, especially on the smaller scale deals. I'd imagine that in a deal of this size and caliber, um, a lot of the value stemmed from having placed systems, right? Really uh robust systems that that have helped the business scale versus uh the owner being involved himself. Was that the case in this deal, or was the owner pretty active in the company? I know you said it was a family type operation. Talk a little bit about the systems that they built over time.

SPEAKER_02 8:10

Yeah, so you know, uh they had a great administrative staff, very lean and mean. Um, the one of the owners ran the West Coast division, and then one of the owners ran the East Coast division. Uh, and two of those two out of the three owners are staying on, uh one permanently uh and the other one for a couple years, and the third owner was the controller of the company. And that that job immediately gets replaced upon uh the completion of the uh the acquisition. Uh the the the owner that's retiring was the controller. He'll stay on for a few months, but typically the private equity group will bring in their own people and start controlling the books. Uh so they they had and they had their supervisors uh you know for each division on the west and east coast, and then they had the the laborers, the plumbers who are very talented to do what they do, um, you know, and and those that are the foot soldiers out in the field. Uh so yeah, there's different uh levels of of management and layers, um, but the toughest part of their job is labor, you know, to get the right type of people that can do the that type of work. And that's and that is the problem in the construction industry right now, is that a lot of young people are not trying to get into the trades and they should, you know?

Clean Books And Quality Of Earnings

SPEAKER_01 9:33

It's an interesting thing, isn't it, right? Because what we just talked about in terms of job security and having uh and I hear it all the time in the trades, it's very difficult to find good help. Um, it seems like there's a big opportunity there uh in that industry if people would just you know get back into the trades more uh more frequently. I don't know what it is.

SPEAKER_02 9:52

Yeah, there's gonna be a pivot in the American society, realizing you know, you're growing up and you know, I mean, at least in certain communities, you know, you go out there and you get college educated, you go into finance or you go into some type of accounting or legal or corporate management, but there's gonna be probably massive layoffs coming in the future, um, you know, maybe because of the economy and AI and everything like that. Uh, so people are gonna have to, you know, the next generation up is gonna have to learn how to pivot and not follow the footsteps of mom and dad and and do something that that, you know, you know, maybe with their hands, you know. Yeah, back to the uh the drawing board, literally. You know, it's gonna be a necessary pivot, no doubt, you know.

SPEAKER_01 10:44

So is this were were they thinking about selling this for a while, or is this like how how how long was this in the making? I know um just trying to get an idea of how prepared they were before the idea of selling was even on the table.

Diligence Surprises And “Go Ugly Early”

SPEAKER_02 11:01

Um, yeah, so uh 10 years prior, um seller had an issue with a former employee, uh, which allowed him to be better prepared for that day, basically. Uh seller uh took over the books. And since the when the seller took over the books, uh extremely clean books. Uh it was incredible. I was very happy that one of the rare occasions where I can see when I went on the uh profit and loss day, and everything just fell right to the bottom line. Uh, because the owner's salary, uh, we we do not when when you're calculating based on the EBADA, you don't add back the owner's salary because they're gonna stay on and they're gonna keep their salary. So, based on pure profits, that's how clean the books were. And that's only because they had an issue many, many years ago with a bad employee. Um, so this was an extremely you know clean set of books. Uh, it wasn't audited, it wasn't reviewed, more um, you know, compiled financial savings with the CPA providing the review, uh providing you know the PLs. Um, but it was it was extremely clean. So we were very fortunate on that and a and a very mature, uh focused, uh, incredible business owner. All three business owners were incredibly smart. Um, you know, I I tried to uh uh bring in teams of you know advisors to help throughout the deal, and and the owner was very capable uh and he was very knowledgeable. Uh so it was, you know, it was just myself, uh the attorney, uh the seller's CPA was involved, and plus the plus the other two owners. So we were able to get the get to the finish line.

SPEAKER_01 12:52

I I love how you said that it was because of that issue they had many years earlier that taught them the lesson uh that got them to the place that they were. The older I get, Russell, the more I look at at challenges and difficulties and things that at the time might seem like bad situations, as more teachers, right? They're they're trying to show us something, and and oftentimes uh we're able to benefit from those experiences.

SPEAKER_02 13:18

Yeah, yeah, it's a hard lesson to learn. Uh and I I see quite a bit in these um smaller construction companies as people get um too much access and too much control of internal operations, and they're really just sometimes bad people. And then the business owners learn from it and they become a better company and and allows them to be where they're at today and be able to sell for those type of numbers.

Timing, Market Fit And Choosing PE

SPEAKER_01 13:46

Indeed. So what what did buyers in this deal what what what did they focus on, or what was some of the focus that they had that would, I guess, surprise an average business owner?

Exit Paths, Rollover Equity And Second Bite

SPEAKER_02 14:01

So in the deal, um we had a uh you know, January of 24, we went under an LOI. And we thought it was gonna be a really quick five months closing. And it ended up being where he a seller had many jobs uh that were supposed to start. Um and they didn't. So all of a sudden, his 25 numbers were getting you know like very minimal revenue. And that became a very uh it became a situation where the the private equity group could have canceled the deal right there, and we would have had to wait for the not even because 25 was gonna end up being a lower year from the year prior because the jobs didn't start. So that means we would have to wait in the entire 26 to come through to get the flow of the work and then put it on the market in 27. So what ended up happening was because the sales were like were non-existent for first six months, the private equity group waited until November until the jobs were all kicking in of full gear so they can see the consistency of the revenue coming in. So what ended up being could have been a quick four or five month deal turned into a like an 11-month, like unknown if we were going to close. Because at any moment the private equity group could have withdrew their uh withdrew from the deal because the the the trailing 12 months of the business was declining really fast. Um so we were very we were very fortunate that it was their first entry. They wanted, they had the launch, they needed the company. Uh, they renegotiated, we kept the top line the same, but it ended up being where there was seller financing, there was earnouts, there was rollover equity with a substantial down payment. So the deal structure changed along the way. And it was just a matter of when would these jobs start consistently so the revenue would stay consistent. So they the private equity group waited until the close on um uh November to make make that deal happen. So that's the risk when you're dealing with projects. Uh, if if the projects don't start on time, they get delayed, and and you're dealing with big numbers, then that all of a sudden you're you you might have no revenue in the business. So that was that was the challenge in this particular situation where the deal could have crashed 50 times over, but the private equity group hung on um because they knew, you know, but the company did like 20 million dollars a year before, and they were just the flow of the sales was not coming in in 25.

SPEAKER_01 16:55

Yeah, as I always say, so many moving parts, and that that's the thing I think a lot of people don't necessarily realize with the these larger deal structures is that the sales cycle often takes considerably longer, and there's a thousand and one different things that can completely blow up the deal and go off the rails. Um, but to to bring it home and get it through, you know, my uh my hat's off to you, sir.

SPEAKER_02 17:16

You uh thank you. We live another day and we go we go on to the next next opportunity, right?

SPEAKER_01 17:24

Next opportunity for sure. I want to circle back over to the financials. You mentioned earlier that because they had that issue with the former employee, um, it kind of woke them up and they started structuring their books properly. Um, I know there's a lot of business owners out there that that would love to get to the point uh of north of eight-figure or in the eight-figure territory. Um, but again, if you don't have clean financials, it could be very, very difficult to do that. Obviously, that speaks to how how the business is structured and the scales. From the deals that you see, how how important do clean financials kind of factor into these larger deals? I'd imagine that that the larger the business gets, the the hopefully the cleaner the financials are. Or is that not always the case?

Prep Early, Systemize And Final Takeaways

SPEAKER_02 18:06

You know, all these businesses start out as like a mom and pop business. And as you grow up and you start getting more mature and your sales grow, you have to make a decision. Are you going to spend money on your accounting, your accounting department? And the ones that spend money on their accounting department will have great books and records. Could they reinvesting? Uh, you know, especially if you're a business owner, if you're if at that size company, if you're not looking at P ⁇ L and balance sheets, then how do you how do you go? You're missing very important information that leads your company. Okay, so you got to have that as a CEO of a company to understand your financials. Um, so the companies that don't invest and they're still treating their$10 to$15 million revenue company as a mom and pop business, well, you know, those are the type of businesses where they're living through the business, buying stuff through the cost of goods. And and sure, we can we can find a way to add it back. But what when when we get these larger accounting firms to come in and do the quality of earnings, you're running a bigger risk of a renegotiation and losing some value if the books and records aren't timely and done appropriately, revenue recognition, because the the private equity groups are based on gap accounting and small businesses aren't. So you gotta you gotta bring your books as close to gap accounting as possible without being gap accounting, and and has to be the ability of these, it's it's like an audit, but not an audit, but they're gonna go through diligence on many different topics on your business. So it's not just about the books, it's about the insurances, it could be about environmental, it could be about human resources, every topic. Uh a lot of different uh stones are unturned when you're buying these companies, where in a smaller business, they're just looking at the financials, and then on these MA transactions, it it is everything. Uh, you know, even they even do background checks on the owner. So if you you know, if you have a checkered bass, it's gonna come out and it could kill you deal there right there. So so you you know, everything has to be in place, and most important in these deals is disclose, disclose up front, go ugly early. Don't drag these private equity groups to where they find all the dirt, because that's that's where the renegotiate or the cancellation will happen. So in our world, we you want to go ugly early.

SPEAKER_01 20:33

Yeah, make makes sense to be forthcoming and not keep skeletons in the closet. It's all gonna come out anyway in a deal like this. Yeah, it comes out to bring it out in the front. Yeah, so we alluded to it earlier, talking a little bit about AI and and the state of the world right now. What role did timing and market conditions beyond that play in this particular deal?

SPEAKER_02 20:54

Um, I this this particular circumstance, it was more of a AI did not play a role in this. Um, but we we know that private equity groups are targeting these contractors uh because it's a manual type business and and AI uh won't won't do it. Uh this was just a a timing of that exit where an owner was in the mid-60s and wanted to, you know, working all his life and he wanted to put his son in a better position uh because the son didn't want to take over 100% of the business and and he he enjoyed what he was doing. He just, you know, as the father exits, he just wanted the son to be in a better position and have the um like a part like a partner, because that's really what a private equity group is. Um you know, a majority partner basically is what a private equity group is, and and go to the next level. So um it was really planning, and we we brought many majority cash offers to the table along the way in the first round, and and they picked a Private equity group that really worked well for the new owners and which took on rollover equity, it took on earnouts, it took on a lot of different creative financing uh because the seller really hit it off with the private equity group. Uh, and he had some tough decisions. Do I take out a 90% cash out position, which I thought he was going to do, compared to maybe like uh like 70% down? And they, you know, the and I and I think the the son really liked this private equity group that felt they could work together. So kind of uh completely opposite thought what I thought they were gonna pick, um, which is fine, it's their decision. Uh, you know, it's uh, you know, it's it they have to work with them after our job is done. So pick pick pick the private equity group that works for you, you know, with the right culture.

SPEAKER_01 22:52

Yeah, 100%. Not always not always about the dollars and cents, especially if you're staying on long term, right? There's a level of comfort that you want to achieve um as you structure these things. So um that this business was started how long ago?

SPEAKER_02 23:06

Oh, I think it was started in the uh I think it was in the 80s. Okay, so because it's been a few months, so but yeah, no doubt. It's uh it's it's been around quite a while and um family run, of course, and uh the leader, the leader in their space.

SPEAKER_01 23:23

If they had tried to go to market and and and sell the business, say five years earlier, how different do you feel the outcome would have been back then?

SPEAKER_02 23:32

They you know, I didn't look at the numbers back to 2020. That that was like COVID years. Um, I don't believe they were sitting at the level of sales uh that they were. I would assume they were lower. Um but I I think it was the timing was right. Uh sales were great, uh they were over 20 million. Um Grady Badaw finished the year great. Um, and and it's about an owner who wants to be on the other side of ownership. You know, they see the light at the end of the tunnel, and they need to spend a couple of, you know, maybe a year or two with the private equity group to transition, but they don't want to be in the chair five years out, let's say, three years out, two years out. That's when you know it's time. And and and the best type of owners who are in their 60s, they they built up this incredible asset on their on their uh personal balance sheet, and uh it's not really liquid. So that's where we come and we take a illiquid asset and and and make it some money for they they can invest. So that was very, very important. And you know, uh just timing, timing in someone's life to be on who wants to see the conclusion of a working career, basically.

SPEAKER_01 24:55

For someone out there that's listening, Russell, that owns a service business, right? And they think, well, that'll never be me. What are they missing here? Speak to that that business owner out there that that wants to get to that point and is just kind of stuck.

SPEAKER_02 25:11

Well, there's a few ways to get out of business. You know, you spend your entire life building a business. Uh, you know, you can close it down, make get no money for it. Uh, you can sell it to an employee, and and most of your employees don't have the money to buy your business. So now you're becoming the bank to the seller financing majority of your company to an employee, which is nice if that's what you want to do. And and a lot of people do that. Uh, you can just turn it over to a family member and no money down, and you can pull a salary out for the next 15, 20 years and right into the sunset. And then the last option is to hire an advisor like myself uh and and take the liquidity out of the company. And uh and and if you stick around for a couple of years uh you know and roll over some equity, especially in the acquisition world, um, you know, these private equity groups will turn around and flip the whole package seven years later at a higher multiple. So, and they call it the second buy to the apple, where where you get a good chunk of money up front when you sell your first time. And then if everything goes well over those seven years, they'll they'll sell all the tea all the companies together, and and then there might be a bigger payout down the road. Uh, so that's why so many owners take the role of equity. Uh, but there's only there's only a couple ways to get out of business. So eventually you'll be faced, you know, you you don't want to be 70 plus trying to sell your business because most of the time that's when the declining trends kick in, uh, where you lost the interest in the business and and you end up being the legend in your own business. And that's what's very tough to sell is the legend, you know.

SPEAKER_01 26:54

Yep, yep. Yeah, so don't don't wait, right? If you listen to this one takeaway, if you're uh running a business out there, you know, start start thinking about this stuff now. Don't wait until the end, uh, don't wait until it's too late. Start putting systems in place, you know, make that investment into your business. Like Russell talked about with the accounting, um, again, putting operating systems, employment, all these things, they are not expenses for your business, they are an investment in the that future value of your business.

Credits And How To Reach Us

SPEAKER_02 27:20

The minute you go into business, you should be preparing your exit. If you think that all the way through, then you'll maximize the value of your business. Um, so that's important. You know, there will be an exit one day, and and it comes up quicker than you think. And if you take the attitude of one day I'm gonna exit, every every move I make should have in the back of your mind is that it doesn't make sense for the exit.

SPEAKER_01 27:49

Yep, indeed. All right, well, let's leave it at that. Thanks everyone for tuning in. Uh, if you found this content useful, don't forget to like, subscribe, you know, the drill, all that fun stuff. Uh, let us know if we uh if we missed anything. If you have any questions, let us know in the comments. We always like to hear your feedback. Until next time, everyone take care, and we will catch you on the next episode of the South Florida MA Advisors Podcast. Have a great day.

SPEAKER_00 28:12

Thanks for listening to the South Florida MA Advisors Podcast. For more information, visit SouthfloridaMA.com or contact 954 646 7651.