#183 The $250M HVAC Collapse: Inside Air Pros' Bankruptcy

In this episode we discuss Air Pro Solutions, a once-thriving HVAC company, crumbled under $250 million in debt, exposing the dangers of aggressive acquisitions, reckless spending, and poor financial planning. From sponsoring the Miami Dolphins to underestimating inflation, rising interest rates, and integration challenges, this deep dive breaks down how their strategy led to one of the biggest HVAC business failures in history.

🚀 In This Episode, We Cover:
🔹 The power of Google My Business (GMB) & Local Service Ads (LSAs) for lead generation
🔹 How strategic hiring & project management drive success
🔹 Overcoming seasonality challenges in the roofing industry
🔹 The role of Klaus Roofing Systems & key partnerships in scaling a business
🔹 The importance of financial oversight & long-term client relationships

💼 Special Thanks to Service Scalers
We’ve partnered with Service Scalers to optimize our Local Service Ads (LSAs) and Google My Business (GMB) strategy—bringing in thousands of leads and driving major business growth. Want to do the same for your roofing business?
🔗 Check them out here

💡 Shoutout to Avoca AI!
Looking to train your call center team and improve service efficiency? Avoca AI helps businesses boost customer interactions and performance.
🔗 Schedule a demo

🎙️ Episode Hosts:
🗣️ John Wilson – Follow on X
🗣️ Jack Carr – Follow on X

📢 Contact Owned and Operated:

info@ownedandoperated.com

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John Wilson, CEO of Wilson Companies
Jack Carr, CEO of Rapid HVAC

Disclaimer: This podcast reflects personal opinions and is for informational purposes only. No statements are intended as financial, legal, or business advice, nor are they meant to be defamatory or harmful. Listeners should conduct their own research. The host and producers are not responsible for any actions taken based on this content.

Contact Owned and Operated:

• info@ownedandoperated.com
• Visit the website for more information

More Ways To Connect with O&O

• John's YouTube Channel
• Weekly Newsletter

Leave a Review

John Wilson, CEO of Wilson Companies
Jack Carr, CEO of Rapid HVAC

Chapters

• 0:00 The Downfall of Air Pro Solutions
• 1:30 The Largest Bankruptcy in HVAC History
• 5:54 The Impact of Bad Acquisitions
• 17:13 The Debt Crisis
• 24:11 Market Downturn and Investor Expectations
• 29:12 Challenges of Large Acquisitions
• 34:41 Integration Issues in Acquisitions
• 45:12 Future of HVAC and Home Services
• 46:00 Final Takeaways

Transcript

Owned and Operated 183 Transcript 

Speaker: [00:00:00] If we look at some of the decisions Air Pros made, the question wasn't if it was when, yeah. Air Pro Solutions has filed for bankruptcy and then the way they spent money was absolutely wild. 

Jack Carr: What happens when you give an average 3-year-old? $200 million. 

Speaker: They ended up racking up $250 million of debt.

Jack Carr: Boom. 

Speaker: Just freaking boom. 

Jack Carr: I think we're gonna have some trouble. There's gonna be a few more that pop through. 

Speaker: I think we're gonna see more.

So the latest thing that we've been working on. Is maximizing our LSAs, which is local service ads, and also optimizing our Google My Business profiles. So what that means is we're making sure that all of our LSAs are on when we need them, and they're maximized to give us the best ROI. And then for GMBs, it's been partnering with service scalers to drive.

Way more traffic through our GMBs. GMBs are almost like the new SEO. The more you put [00:01:00] onto them, the better the performance. So our GMBs have been consistently getting better week after week after week, and it is our currently, our single most impactful. Organic lead channel. So we'll sell hundreds of thousands of dollars a week through our GMBs.

And I think last week we got 900 phone calls. So really impactful, awesome investment, and we've been able to partner with service scalers on both of those things. If you wanna hear a little bit more about service scalers, check out service scalers.com. 

Jack Carr: Welcome back. 

Speaker: Yeah, but I'm, I'm excited. And look, I, I just, I'm not excited for like, the pain, the loss, the, you know, the, the job job, uh, impact, um, of this.

But I'm, I'm excited because this is, we're, today we're gonna be covering the largest bankruptcy in HVAC in a long time, and we're talking about the $250 million explosion. [00:02:00] That is Air Pros boom, just freaking boom. Absolutely wild. I mean, we, we've been talking for a while on the show about like, Hey, people are struggling, people are whatever.

And, and I've known a lot of people on the brink of bankruptcy. I do know a lot of bankruptcies, unfortunately, like north of 15, mostly small operators. But this is the first humongous one. But there's some other companies that are really struggling. I don't know if we've talked about, you know, GTO's revenue's down like 60 or 70%.

Jack Carr: We talked about it at the end of last year because I, we ran through 2023. 2024, yeah. Numbers on people locally to my market who are down 20, 30%. And these are a hundred million dollar companies. Yeah. 

John Wilson: Yeah. And 

Jack Carr: so that. Like, you know, we've talked about before, especially for you, less so for me, but on a percentage base, there's a huge difference between being 20% down on like 3 million in revenue.

Revenue, yeah. And being 20% down on 219 million in revenue or whatever. 

Speaker: [00:03:00] Yeah, no, a hundred, a hundred percent. I mean, and Gettel, you know, GTO got up to like 180 million of revenue. I think they're at 60 or 70 right now. It's, it's wild. I mean, they sold off $40 million in California and then their other primary branches have really struggled.

This isn't about ghetto, we're talking about Air Pros, but it was just interesting because this was our first real big explosion. So I'm gonna, I'm gonna set the stage, 

Jack Carr: set 

Speaker: it 2017, A man in Florida, I feel like up in Ohio. That's how all the, that's how all the news starts. A Florida A Florida man. So Air Pro Air Pro was founded in 2017, and I think I've got the guy's name in here.

Of who the founder was. Uh, but they sold it pretty quick. So Air Pro, they bought a company in Florida in 2017, and then they went on to aggressively grow through greenfields and acquisitions. And like aggressive. Aggressive, like kind of crazy. And then the way they spent [00:04:00] money was absolutely wild. Like there was some pictures on Twitter of like some cheerleaders from some major sports team.

I don't even know. Miami 

Jack Carr: Dolphins. 

Speaker: Miami Dolphins, yeah. Well, they sponsored the Miami Dolphins I think was just a sponsor. But then the cheerleaders came and did a photo shoot with them. Over acquiring another HVAC company. 

Jack Carr: Mm-hmm. 

Speaker: Like it's like nonsensical level of expenses, right? Like that, that just doesn't even make sense.

They got through eight states, they had nine different business units, and basically this is a product of super low interest rate acquisitions. Exuberance. Like having cheer, like a major football team, cheerleaders come and like take a photo shoot with you over an HVAC acquisition is like the definition of exuberance to me.

So like 20 20, 20 21, free debt, money flying in from the government all over the place. HVAC is starting to heat up and these guys just absolutely went crazy. Acquiring all these companies for prices that just [00:05:00] didn't make sense. Well, I 

Jack Carr: mean, yeah, even 2017 through 2020, I mean, the interest rates were ridiculously low.

Um, yeah. All the way throughout. All the way probably up until what? 20 21, 20 22 when we started seeing the, the, um, prime plus decline and yeah, his name was Anthony Pereira, I believe. 

John Wilson: Yeah. Yep. 

Jack Carr: And you know, the crazy part to this, John, is like, he's our age. Yeah. You know, I always, um, I always imagine like this private equity playbook and this group is the, these old white hair guys who are 50, 60 years old.

They've been doing this for years and years, but you know, some of the people out there who are playing the, this private equity games and really levering up on $200 million in debt. Yeah. They're, you know, they're in their early thirties. 

Speaker: Yeah. I mean, you know, someone's gotta be the operator. Like this is, this is tough.

Yeah. If, if I were to, if I were to like summarize the next 30 minutes that we [00:06:00] dive into this, it's gonna be too much debt, not enough cash flow, irresponsible expenditures and exuberance in pricing. 

Jack Carr: Yeah. It 

Speaker: is like those four things are the killers because I think, I think it's easy to look at it. They can be like, ah, it was bad timing, interest rates rose.

And I'm like, interest rates didn't make you sponsor the Miami Dolphins? Yeah, like. Like, there's clearly like dumbness going on here. I 

Jack Carr: also don't think that that it was exuberance in itself. I think that there's a big part of this that's, that's not talked about very often is the difficulty of actual acquisitions.

Right? It, it was a, yeah. Non-understanding of, you know, we hear this, this, this trope of, oh, you just take a bunch of businesses, smash 'em together, and then they have it. You know, a higher multiple arbitrage. Yeah. And the reality of it is like smashing businesses together and running multiple operations Oh yeah.

Is not an easy thing. Like I'd love to [00:07:00] during this episode to like hit your story about buying electoral. Yeah. We talked about how amazing electrical is, but it was a hard, it took a lot of work. 

Speaker: It took a lot of work. 

Jack Carr: Buying a plumbing company took a lot of work. Yeah. Like, this isn't easy. 

Speaker: Yeah. Yeah. It's, it's definitely not.

And I think, who are you buying? I. I think there's a couple, like a couple lessons to walk away from this with is who are you buying? Like if you were the acquirer and if you're getting ready to sell to, who are you selling to and asking them real questions about like mm-hmm. Hey, what are you marked at right now?

How, what is the current success? You know, I had, I had somebody, it was like, I wanna do an episode all alone on this, because the level of stupid was so astonishing that I was like, I have to communicate. This to a large group of people. I got cold texted the other day. I don't even know how this dude got my phone number.

I got cold texted the other day by some random ass guy and he's in my community and he's like, Hey, do you wanna sell? Do you wanna sell the uh, the business? And here's the other [00:08:00] brands we own in the market. The other brands he sent me in the market are like 500,000 to like $2 million brands and the largest one being like 12 to 15.

And I'm like, one, the way he spoke was insane. So like the way he like came off and presented himself was very like, grant Cardi. And I'm like, okay, well the brands you have are terrible and the reason that you have these terrible brands is the only people that are, that are gonna resonate with the way that you're approaching them are people with bad brands.

Like, if you wanna be taken seriously, you should be serious. Yeah, it was, it was just so unbelievably dumb. And then he went on and then I went on to just ask some probing questions like, Hey, walk me through the platform a little bit. And his answer was so succinct. I was like, this is actually probably gonna be the next Air Pros.

Like, because his answer was, Hey, we are succeeding around the country. And I'm like, oh my fucking God, you guys are bankrupt. Like you have 15 brands, they're all terrible. The largest one is $12 million. You're in a couple states, like you are the next Air Pros. You guys are gonna go bankrupt. So [00:09:00] just 'cause somebody reaches out to you and says they've got a couple bucks, which this guy and I quote.

I will back up the Brinks truck for you, which was such an idiotic way to approach somebody. I was like, this, this is going down. I, I am fascinated to watch this go down. I will buy the parts. 

Jack Carr: Yep. 

Speaker: Uh, which is what some people are doing with Air Pros, but be really cautious who you sell to. Just 'cause somebody has a couple bucks doesn't mean shit.

I was gonna 

Jack Carr: say, they usually don't have a couple bucks. They're, they're playing with somebody else's money at high interest rate. Um, yeah. But they did get someone to loan them or back them at that. Yeah. And that's about it. Yeah. 

Speaker: I mean, how and how many sellers, how many sellers sold to Air Pros going off of the story of Air Pros mm-hmm.

Without understanding the financials of Air Pros. Like if you dive into this, which we will, like, they've been, they've been working for over two years to unhi this business. Yeah. So they, they hired like turnaround people back in 2023. Like they knew this was a problem. Two something years ago. And how many [00:10:00] deals did they still do in 2023 and 2024?

And sell the owner on the dream of the second bite. When they're working through like bankruptcy. 

Jack Carr: I was gonna say that's one of the, the sadder parts of the story is the owner that have sold. Yeah. Because, you know, they rolled in equity 20, 30%, 40, 50%. Who knows how much Yeah. Or 

Speaker: $200 million of revenue you should roll equity.

This thing's worth x Yeah. Worth. You have an earnout in 

Jack Carr: three years and, and will row you in 20 million and you're gonna make six x on that. That 20%, excuse me, you're gonna make six x on that 20% and they walk away with, yeah. Way less. Yeah. Way, way, way less. Yeah. 

Speaker: Now I, I will say I am very pro rolling and earnouts and whatever it is that we bring on a partner, I will roll a ton of it.

I will also ask a lot of questions. 

Jack Carr: Yeah. 

Speaker: Because I think that people just assume that the bigger companies know what they're doing. When really it's just some freaking idiot talking about backing up a Brinks truck, [00:11:00] like, this guy has no idea what he's doing. Uh, tell us how you really 

Jack Carr: feel, John. Tell us how you really feel.

It, it was just 

Speaker: the mo like, I'm, I'm like, I'm, I'm reading these texts and I'm like. Is he like, am I being like pranked right now? It was, it was such a level of stupid to approach a business my size. I was just amazed. And then I look at the portfolio and it's all a bunch of $1 million shops and I'm like, got it.

Jack Carr: Did you, did you get any information? I couldn't find any information on it Of like the, the, where they secured the debt from or the type of debt?

Speaker: No. 

Jack Carr: Yeah, no, I couldn't either. 

Speaker: Yeah. I mean, I think some of it private. Yeah, I, I would probably, investment banking would love to 

Jack Carr: be, you know, things like that. Yeah. But that's my curiosity. 'cause I was, I mean, I wouldn't be surprised if they picked up some kind of, you know. I don't, to be honest with you, I don't know what debt looks like at 200, 300 million.

I would imagine it, it's, it's different than debt at one to 5 million. Just like Yeah. Banking one to five. Yeah. Like I don't understand terms in, in that [00:12:00] range. So I was looking to see like, what, well, maybe it's the type of debt, because I've seen like, yeah, high. High interest, um, not fixed debt, like, you know.

Yeah. Of, of course. Yeah. It goes up two, three points and then boom. Well, I think that's a lot of it too. Like a bunch of this 

Speaker: debt is floating. Yeah. Yeah. A bunch of this debt's floating, uh, conventional debt. I mean, I don't know about these specific terms, but when we've shopped conventional seven year terms, uh, really strict covenants and like this business, there's a book, it's by Jeff Sands.

It's called Corporate Turnaround Artistry. And it is a great read. Um, I encourage it for everybody. I've read it when the business was going through some really challenging moments because I've wanted to understand fully what does bankruptcy really look like. We've never gotten a close enough to like really experience any of it, but it walks you through it, and in this case.

The bank starts calling the shots at a certain point. Like a founder doesn't get to run this thing into the ground. Well, [00:13:00] that's, uh, the bank starts calling the shots. That's what you want. So in 2023, the bank started saying like, Hey, we're, we're bringing in our people. We've given you hundreds of millions of dollars.

We're going to start mandating our own, uh, team to be inside this business to help fix it. And like, you're gonna be kicked out. Um, which is why he left in 

Jack Carr: 2024, right? He, he, right, he left before the bankruptcy. He left a year before. 

Speaker: Yeah. 

Jack Carr: It's been bad for a, a while prior and two years. 

Speaker: Yeah. 

Jack Carr: You know? 

Speaker: Yeah.

What I'm fascinated by is how many others of these are we gonna see? Mm-hmm. Like, this is two years. I, I haven't honestly heard about Air Pros being a challenge. I, I have heard about ghetto being a challenge. I've heard about next gen being a challenge. Um, I've heard about a lot of the. You know, Heartland went through a really challenging point.

I think they're doing better now, but I'm, I'm fascinated to see how many other breakups we see like this. And this is just following Sila, selling for like record dollars. Heartland is gonna try to trade in the next year. All the big ones are gonna try to trade. I was just gonna say, and now they're [00:14:00] like, they're plagued by this massive bankruptcy.

We're about eight months into using Avoca. And Avoca Hass been an awesome partner for us in our call center. So what Avoca does for us is they do two different things. One, they have their coach product, and coach has been helping us do what it says, coach our CSRs every single day. It listens to every call and uses AI technology to basically pick apart that call and tell us where we can improve.

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And a customer will call in and actually deal with an AI agent all the way through booking and the savings Inside Call Center has allowed us to ramp up our marketing to continue to grow even more. Thank you Avoca, and thank you Tyson, for your partnership. 

Jack Carr: So, I mean, all you have to realize, right, that all of these private equity companies are on a three to five to maybe seven year timeline before they [00:15:00] have to trade to return to their investors, right?

And so most of these businesses started with this boom at the late. 20, right. Teens. Right. And into the early 2000 2020s. And so if they started up in 20 19, 20 20, 20 21, like yeah, they're at that point where they have to return to their investors. Right. And they, and I'm talking about hundreds of millions of dollars that they have to return to their investors.

Their investors are not gonna sit on it for another 2, 3, 4 years while they get their books. Right. And like that corresponded perfectly at this time in 20 23, 20 24, where we saw a downturn in the HVAC market that. I mean, we expected, but a lot of institutional investors weren't expecting. They were expecting, hey, huge amounts of growth for the next, you know, up until 2030.

Forever. Yeah. Yeah, 

John Wilson: forever. 

Jack Carr: And so, yeah, those two things compiling, I think put a lot of private equity and a lot of investment groups in a very bad position rolling into 20 23, 20 24. And I think this, these next like [00:16:00] year to two year segments is gonna be the key. Yeah. If we have boom years again, like we did 2022.

Um, yep. I, I don't think we'll see too many more of 'em. They'll just trade. Yeah. But, uh, if we don't and it stays kind of status quo to the 20 23, 20 24 numbers, I think we're gonna have some trouble. There's gonna be a few more that pop through. 

Speaker: I think so. I mean, I think all of the South is still struggling and whether or not they go, you know, whether or not they go this path or a different one, I, I think we're gonna see more just 'cause I, I, we know that they're, we know ghetto's struggling.

Like, and the, you know, pe the way it works is they come in and they load a company down with debt, crippling debt, which is what we're looking at. And they use that to go buy a bunch of more stuff. They wanna grow as fast as they can. They wanna outpace the debt. And this is an example of what happens when that doesn't work out.

Jack Carr: Yeah. I mean, debt's a great lever to grow just, and, and this is a great, you know, asterisk to anyone's business here that's listening Yeah. Is like, debt is an amazing lever to grow, but it can't outgrow your cash flow. Right. Yeah. If your debt, payments start, [00:17:00] obviously outgrowing the pace of, of your, your growth and, and what you can bring in.

You can't pay the debt and it's super simple. Yeah. But I think it's something that's often overlooked or, you know, the industry changes and, and you don't cut fast enough. 

Speaker: Yeah. What I thought was kind of interesting, I, I would love to peek a little bit deeper, but they, they took over $20 million of financing.

In order to run a like transition period. 'cause they're basically selling off all the business units. Yeah. Uh, actually I have a friend that's buying one of 'em, which is kind of interesting for like 20 million bucks I think I, I would not 

Jack Carr: touch it with a 10 foot pole. I. I mean, I get that there's, there's people that, it makes sense.

The, the 

Speaker: contracts, the contracts are, are fascinating reads. Like, Hey, if we lose X percentage of staff during the transition, I get 40% off. Like, the pegs are wild. Uh, so they're, they're pretty protected. But I agree, uh, that was my stance too. I, I don't have, I mean, maybe, maybe John two years ago, or maybe John two years from [00:18:00] now, but John today has zero appetite.

Yeah. For anything that looks like that, I mean, 

Jack Carr: the deal would have to be so good because I, the court of public opinion and these deals weren't that good, would destroy you. Yeah. Like I feel like it would, yeah. I mean you'd have to, to be very bad, 

Speaker: you'd have to rebrand it 

Jack Carr: not, not only from like a customer point of view.

'cause Right. The one big thing that that large companies have, or one of their big advantages is, yeah, my warranties and my guarantees, everything is secure. Yeah. And now you have this negative PR that's coming out. But not only that, like. Technicians, which run the business You have to, 

Speaker: yeah. Oh, so they're sell, they're basically selling off the parts.

I think it's 11 different transactions. It's inside the bankruptcy filing. Uh, Alec from Home Pros did an awesome, like, breakdown of this, but they're selling off the parts into all these different, uh, business units and they're selling 'em off to the stalking horse bidders. Again, I, I really encourage the corporate Turnaround artistry book.

It's a lot of fun 'cause it actually walks you through this whole process and like what leads up to it and [00:19:00] what happens after. And usually it's like bank driven and then court driven and there's a certain point where you just lose control of the company. Like they just take it from you. And that's a part of taking on that much money and debt, like the bank has a lot of rights if you miss, I mean, rightfully so.

Jack Carr: If you run. A $200 million debt into the ground. Yeah. Like they sh they probably should take it. Yeah. Yeah. 

Speaker: Oh, and, and I think, like, I, I'm back to exuberance. I'm sure everything looks good in the moment, but I mean, paying 12 to 15 times for deals that aren't that good and like sponsoring NFL to like all of this stuff is just dumb.

Yeah, like it's, it, it's, I don't know. I feel like, you know, if you're going to do that, you need to be in a rock solid financial position, which these guys have never been in a rock solid financial position. 

Jack Carr: Yeah, I was reading that they were taking net losses of half a million dollars. I. Yeah. Per month, regularly, just like consistently for, for multiple months at a time in some of their breakdowns.

And, and I was going, oh my gosh, no wonder. But I didn't get to, to [00:20:00] peek behind the curtain into what their exuberance was or, and if it was, and then the way they're 

Speaker: spending, it's like you don't have a chance to turn it around because the. How you spent prior, like it's really hard, like once you pay a price for an acquisition like that is the price that you paid.

Jack Carr: I, I think that one of the really important things to even like barring the exuberance and all that kind of stuff. Yeah. That I think is a really important thing to, and, and to your point is the difficulty that comes associated with these large acquisitions and smashing them together. Yeah. And lining them out.

It's hard work. It is very hard work. 'cause if you think about it, right? Yeah. The reason that a lot of owners are selling is 'cause they, they don't want to do this anymore. And so you either have to put in an operator or you have to convince the seller that they need to sell 

John Wilson: Yeah. 

Jack Carr: Or run their business in a different way.

And stay. Yeah. And stay. And that's, it's just a hard thing. 'cause if they knew how to do that and they wanted to raise prices, they would've done it. Or they would've sold a different way that private equity wants them to sell. Like they would've, they would've [00:21:00] implemented a lot of these things. 'cause it's usually not a capital issue.

It's, it's like a, it's a leadership issue. 

John Wilson: Yeah. And 

Jack Carr: why they didn't get to the next level and why they sold it that. And so to be able to convince the leadership team, like I, I, I've been pretty vocal on, on this podcast about, I, I love talking to private equity. I, I love the private equity model when it's done right too.

Um, yeah. That being said, like I, they talk about sometimes that, that. The issues that come along with buying ownership. 

John Wilson: Yeah. And 

Jack Carr: I've ran into buying ownership issues. And you've ran into buying ownership issues? A hundred percent. 

John Wilson: Yeah. 

Jack Carr: It's, they almost every time that an owner stays on it is a nightmare.

Almost every single time. Because they've run, yeah, they've run their business for 10 years. They don't wanna raise prices. You come in, you're like, Hey, you're 20%. Then they raise their prices. They don't believe you. Yep. You try to, they, they're in charge of convincing their team now to go and Yeah. Yeah.

Sell at 20% more. Yeah. [00:22:00] The team doesn't believe in it and it doesn't work. Yeah. So I'm off my, my pedestal now, but like, 

Speaker: no, I mean, I, I agree. I think, uh, I. I think it takes a special owner, I think to honestly, Tommy's a great example of it where that I think ended up being a really big win for him and I think it ended up being a win for both of the firms that he's dealt with.

But I, I, I think otherwise it's, it can be a really big challenge's, 

Jack Carr: a motivation thing. Like why are they selling and now I'm flipping like the other coin. Why is the owner selling? Yeah. Are they selling 'cause they're done or are they, are they selling 'cause they've. They've taken on too much debt and they're ready to get out.

Speaker: Well, I think this is choosing a partner, like for us, you know what we've talked about the idea of like selling to an apex. For me, for other people, this isn't, I'm sure this isn't the case. Obviously they've done it like hundreds of deals at this point, but the idea of selling to an apex would be really disappointing.

Jack Carr: Yeah, 

Speaker: because like, I don't wanna be a branch manager. Like that's not what I, that's not why I do this. Mm-hmm. I, I wouldn't last. You know, a couple weeks. But [00:23:00] if I, if there was a partner that, similar to Tommy where like, hey, I want to be, I don't wanna be Apex 300th deal. I want to be the first deal in a platform and I wanna build a platform.

Jack Carr: Exactly. 

Speaker: That would be far more interesting to me. And I would stay on for that because that would be a dream. That would be a lot of fun to go around and be the platform and I, I think that's like our likely scenario. 

John Wilson: Mm-hmm. 

Speaker: Uh, whereas, you know, like an apex or, or somebody else that's a hundred deals in, or 50 deals in, I'm, I don't really wanna be the first cog or, or the last cog.

Yeah. You know, pre-trade. Uh, I'd rather be the first. 

Jack Carr: Yeah. 'cause I mean, I think you're, my motivation would be. Very similar in the sense that like I, if I'm bringing on a partner, I'm bringing on a partner so that we can grow to a hundred million or 20 million or 50 million, right? Like it has to be somebody who's going to objectively help me get there.

And not just like dumb money in there, but somebody who's gonna say, Hey, Jack. We are going to get to a hundred million in like, yeah, five years. Let's crunch, let's [00:24:00] do it. I'm gonna bring in a whole C-suite team that's just for this project. Yeah. I'm like, blah, blah. Like, okay, let's do it. But 

John Wilson: yeah, 

Jack Carr: to, to buy in and be like, Hey, I, I'm, I'm like your Tennessee guy, and we can kind of grow in Tennessee and here's a little bit of money and we will take all the, the bookkeeping off your back.

It's like, eh. Yeah. No, no, thank you. Yeah. 

Speaker: Yeah. I'll hire a bookkeeper. I mean, I, I agree. Yeah, I agree. Yeah. I, I, I agree. I think, um, just be cautious of who you're partnering with. Yeah. And ask them real questions. Like, and, and if they can't actually answer it or won't actually answer it, then like, you should be alarmed.

So saying like, oh, we're, we're succeeding nationwide. I'm alarmed. Like I immediately don't take this guy seriously 'cause he clearly can't answer the question. 'cause it's probably a ridiculous answer. 

Jack Carr: I don't wanna call anyone out. But Cole was that, did you talk to him? Is that who the other friend was who gave him that advice that he needed to know his numbers down to the TI.

John Wilson: Yeah, yeah, yeah, yeah. 

Jack Carr: And so, but that, like, that's the perfect point, [00:25:00] is like, yeah, we're succeeding nationwide is not a actual answer. Versus yeah, we're winning in this market, this market, in this market at this percent ownership of this and that, you know, like Yeah. And like, and what you mark towards. Yeah, yeah, 

Speaker: yeah.

What do what, what are you, mark to like, what are you saying your current value is? What's your current ebitda? And, and like I asked, and then his immediate response was, what's yours? And I'm like, why the fuck would I tell you that? Like, you don't even seem to know yours. If I told you mine, I don't even know what it would make sense to you.

Jack Carr: You called me, you texted me. Yeah. I'm like, 

Speaker: like, bro, like you're trying to be taken seriously and I'm not taking you seriously. Like you are coming off like a joke. Yeah. I mean, ul ultimately my take highlights. The highlights the bad. We all know it's hard out there. I think this is the first. Very real example of like, Hey, this is really hard.

Like, growing through acquisitions is really hard. Uh, integrating is really hard. Running multi-location is really hard. John, 

Jack Carr: I mean, are you open to talking about your integration with electrical? Because I know like that's a, actually a really good example. Like my, my plumbing one was me, but like [00:26:00] your electrical example, like I think is the key here to the integration issue.

Yeah. 

Speaker: Yeah. I mean, I think like if you're bringing on. The, the electrical company we brought was great. Before we bought it. They were doing their thing, they were cash flowing. It's a construction based business, and the reality is it wasn't a them problem. It was an US problem for like, it was an US problem and a timing problem.

Now I can say the same thing about. Air Pros timing problem, but a lot of it was us. Like, we don't know how to run a construction business. Mm-hmm. We just don't. And like guys, I've been in this industry for 16 years and I've probably done it longer than most of you, and I don't know how to do it. And I continue to have to learn that lesson.

We learned it for the final time. Thankfully, I. But it's hard. So I'd be fascinated to know how many of these deals were construction businesses. Uh, a lot of people, I know so many people who buy these construction businesses being like, I'm gonna pivot it to service. And like, I've been in this industry my whole life and I've done that three times, and each one is harder than the last.

Like, I, I [00:27:00] likely know more than you. I have done it. I would not recommend. It is really hard. So. Yeah, so that, that business was good before us. If you can run a great construction business, like pop off, right? Like Kelly was just on and Matt Ballard was just on and they're running incredible construction businesses, amazing operators, amazing construction businesses, far better than I.

So if you, if your core strength is construction, like amazing, like that's not mine. I am really good. I like one of my weaknesses I've gotten a lot better at in the last year, but one of my weaknesses is I really struggle with like. Running a penny pinch business again. I've gotten a lot better at it.

Like we talked about financials last time, like Q1 was really a big win for us. But construction's a penny pinch, like, I'm gonna do this job at X price and my, the entire rest of my life is project managing down to the penny to maximize that project at that price. Yeah. I'm not very good at that. I am very good at increasing the overall pie.

Yeah. I can drive more market [00:28:00] share, I can increase sales, I can bring on more people. That's a game I'm really good at playing. And 

Jack Carr: so specifically though, from the, from the integration I is kinda where I'm referring to. Yeah. Like different business. You had to change it up a little bit to match your business, but from like an integration aspect, didn't you at one point actually have to like.

Step in as the full-time operator. Oh, yeah, 

Speaker: yeah, yeah. 

Jack Carr: Like solely. So, yeah, so we bought the business, 

Speaker: right? So we bought the business, and again, it was good before we got there and there was some stuff that we brought that was bad and there was some stuff that was bad timing. So within the, you know, we, we took it over, um, January one of 22.

And the stuff that was bad that we had no control over was, Hey, I, I didn't know when we bought that business that inflation was gonna start in 2022. And ramp timing up. Yeah. I had no idea that materials was gonna go up 9% week over week, over week for 26 straight weeks. No clue. So all these projects that we sold seven [00:29:00] months ago, we are now hemorrhaging cash on in early 2022.

Gas prices tripled, interest rates tripled. Yep. So those three things, suddenly the economics of this company that was already lean on margin 'cause it was construction. We're gone. Like immediately gone. Yeah. So what that forced us to do was pivot harder and faster than we would've liked into converting the business to service.

We tried to co-run both for about a year and a half, but at the end of the day, all of their contract, all of their customers, which were contractors, went bankrupt. So like their, our customers were laying off people left and right. And even for the. The ones that weren't, were so undersold because material was 70% higher than it was when we bid the job.

Plus 

Jack Carr: you're 90 days out, right? 

Speaker: Plus 

Jack Carr: you're 90 days out if you get paid. Yeah. And then so with that though, right? At one point, I remember you guys had an [00:30:00] operator. You didn't have an operator, then you got a, like a manager. Then you had to step in. And so like that's where I'm, 

Speaker: we hired the business. Yeah. We hired a very competent manager.

What we thought was competent manager. Day one, we actually hired him 45 days before we carried the salary, and we were gonna bring him in to run this, uh, branch. The, you know, the circumstances I just described are challenging. Like, that's hard stuff. 

Jack Carr: Yeah. 

Speaker: And what, what a manager, like a manager can do a good job when they're given a good scenario, but.

You, it's, it's sort of hard for me to be like, ah, he wasn't the right guy. He probably wasn't the right guy. But the challenges were also extreme. Yeah. You know, that was like a once in a career covid, you know, and the backlash of Covid that is a once in a career thing and he just was not able to handle it.

So yeah, I personally took over the business for a year. And integrated it. I drove it to profit in about four months in as all of the ugliest ways you can think. [00:31:00] Uh, but the only non option I've ever had is failing. Mm-hmm. So, um, yeah, 

Jack Carr: I'm with you there. So, but like that's the key and that's like that, I'm trying to draw all the parallel here.

Like I don't wanna get too far off of Air Pros and into this scenario, but like. They couldn't do that because yeah, they're so big and so focused with too many branches. On branches and growth. Yeah. And like you can't just throw like, like you said, the guy's competent. Yeah. He was a smart individual. He was a good manager.

Yeah. It wasn't a bad hire. Yeah. It was just like, yeah. Not good for that time in that place and that situation. And so that's what Air Pros went through in the last two years, right? Yeah. 2022. 2023. 2024. Like, oh, this is kind of going in the wrong direction. Yeah. We've tried integrating, we don't have the right people.

It's really hard Yeah. To find the right person to make it. And we can't lean back on the owner. Yeah. Who can't fail. 'cause his whole life is this like Yeah. Like in a real situation. Right. You, you put some, you put an operator in there, it doesn't work. They, they just quit and they go work somewhere [00:32:00] else.

Yeah. In a good company. And so like, 

Speaker: yeah. I mean, look, PG debt. With the pressure of a third generation company, uh, that's a hell of a drug. You, you'd be amazed what you can do when you know your entire family's looking at you. 

Jack Carr: Right? You, you also have brothers too, right? So like they, they like, it's literally like everyone.

Oh, good times. Yeah. 

Speaker: I mean, look, I'm running my grandfather's company. 

Jack Carr: Yeah. 

Speaker: So like, uh, that doesn't weigh on me often, but anymore when I do something dumb it does. 

Jack Carr: Yeah. Right. 

Speaker: Anymore, anymore. It used to weigh on me a lot more, but I feel like I've made enough of my stamp on the business that I'm allowed to claim it as my own.

But yeah, at the end of the day, it's a third generation business. Mm-hmm. Uh, so a lot of eyeballs. 

Jack Carr: Yeah. So, 

Speaker: but yeah, I think it is hard to replicate that founder energy. The guy with the pg, the one who's going to do whatever it takes. 'cause I'm always gonna do whatever it takes. Bingo. 'cause the only non option is failing.

Yeah. So I, I think, and you know, it, it, the past couple years have definitely [00:33:00] tested me on like how far I was willing to go. And I found out pretty far. Uh, but yeah, they just can't do that when they get that big. You just can't, like, it's, it's really hard to beat a founder. 

Jack Carr: Yeah. I mean, it's hard to beat a founder.

My biggest thing as we like circle back through, go through the air pros, like that was one of my biggest, um, issues is you can't overspend and then hope that these someone else is gonna save you. Yeah. It's just a natural risk with private equity and they can try and, and mitigate that with world equity and stuff like that, but it really is proper purchasing of good companies and making sure that.

You know, you really have a team up at the top who understands what they're doing. Not to say that, that the air pros didn't understand what they're doing. Just to say that in general though, um, making sure that whoever you are selling to you really understand what you're getting into. 

Speaker: Yeah. As a, as a seller or as a buyer, like, who am [00:34:00] I dealing with on the other side and like, what am I gonna get with this?

Jack Carr: Yeah, man, this was, this is super interesting though. I'm, I'm, 

John Wilson: yeah. 

Jack Carr: You know, there, there's a part of me that, that knows that it's not good for the industry to see these, but there's another part of me that knows that, that there has, I had to at some point be a culling of some of these bad operations at the top, I mean.

Speaker: The, the question wasn't if it was when, you know, I was talking to, I was talking to a friend of mine, he's an investment banker at League Park, which has done some of the biggest deals in the country, and what he's repeatedly said is like, look, the biggest thing that everybody has to worry about from a multiples and like Will stay is who's the first bankruptcy?

That's it. That's going to temper the appetite of like buyers, what people are willing to pay. Mm-hmm. Now this is kind of interesting. It's gonna be fascinating to see in like six months what the impact is because look, before [00:35:00] this seal us set the tone. I was just, they had a 20 times multiple. So like we have both sides of the coin here.

Were like, Hey, you actually, we have now set a precedent that a 20 times at a hundred EBITDA is an achievable transaction level. And you also have, Hey, here's what happens with exuberance. So I kind of feel like it honestly balances out. And if we look at some of the decisions Air Pro's made, it seems like one-off, exuberant, bad pricing, bad buying, bad decision making, timed with bad timing.

So I, I don't know that it'll make that big of an impact versus, Hey, CILA just exited and that was a win. Yeah. Uh, Heartland's transaction's probably gonna be a win at 20 times or whatever. So I, I think that's gonna continue to see, but I really think we'll find out. You know, multiples at my level, multiples at your level.

Those are almost completely determined by what size does SEAL exit at? Yeah. Or what size does Heartland or Wrench Apex? What do they get when they go? So do they get a 25 times great? That means they can afford to [00:36:00] swing pretty big on us, but if they get a 15 times. Our number's a lot lower, it 

Jack Carr: gets compressed really quickly.

No, I mean, that's a really good point. Yeah. And so we will see whether it's more of a, a operation op, it was an operational biff, or if it is a systematic, Hey, this is an industry downturn, Biff, so I mean, 

John Wilson: yeah. Yeah. 

Jack Carr: In, in. You know, in the grand scheme of things though, I mean, we're going into a huge transitionary period in HVAC specifically.

Yeah. And in home services specifically with ai, with the changes in regulation. Yeah. So I mean, in, in my outlook, which is, I mean, I'm not a team of thousands of economic, uh, advisors and, and experts. Yeah, yeah. But like boots on the ground looking at it, I think that there, there is a really, um, large potential to keep.

This train rolling in the right direction for Yeah, for those large companies. Yeah. 

Speaker: Well, this was a good, this was a good, uh, this was a good conversation. Fascinating to unpack. I think we should unpack the [00:37:00] SA transaction. I think it'd be fun to see the other side of like, Hey, what does a multi-billion dollar deal look like?

Jack Carr: Was that public enough to be able to see though? Need. We need a, 

Speaker: let's find out. Yeah. Right. Let's find out. Let's get some dets. Well, thanks everybody for checking it out. Make sure you check out our, uh, make sure you check out our YouTube channel. Give us a five star review wherever it is that you listen to podcasts.

And we're just launching owned and operated pro, which has been pretty cool. I think we have 25, or Yeah, I think we have 25 or 30, uh, members in there. It's a. Peer group for home service companies. So that's been really cool. Uh, like launch week is this week, so by the time this episode airs, we'll be a week or two in, but that's been a lot of fun so far.

Jack Carr: Sweet. Thanks guys.