Residential HVAC Company
This analysis follows the BAM Analysis Framework, evaluating Earnings Quality, Capital Structure Sustainability, Operational Risk Exposure, and Upside Potential.
Deal Snapshot
Industry: Residential HVAC
Revenue: $1,250,000
Seller’s Discretionary Earnings (SDE): $320,000
Asking Price: $850,000
Location: Southeast U.S.
Valuation Multiple
Asking Price ÷ SDE
$850,000 ÷ $320,000 = 2.65x SDE
This falls within a reasonable range for a stable service business with recurring demand.
Estimated SBA Loan Scenario
Purchase Price: $850,000
Down Payment (10%): $85,000
Loan Amount: $765,000
Estimated Annual Loan Payment: ~$110,000–$120,000
Estimated Owner Income After Debt:
$320,000 – $115,000 ≈ $205,000
Debt Service Coverage Ratio (DSCR)
$320,000 ÷ $115,000 ≈ 2.78x
This indicates strong coverage relative to lender minimums (typically 1.25x).
Risk Considerations
• Owner dependency
• Technician retention
• Seasonality fluctuations
• Equipment replacement risk
Upside Potential
• Expansion into service maintenance agreements
• Upselling panel upgrades and EV charging installations
• Geographic expansion within existing service radius
• Margin improvement through scheduling optimization
Downside Stress Scenario (15% Revenue Decline)
If revenue declines 15%, projected revenue would decrease to approximately $1,062,500.
Assuming proportional margin compression, adjusted SDE may decline to approximately $272,000.
Revised DSCR:
$272,000 ÷ $115,000 ≈ 2.36x
Even under moderate revenue contraction, debt coverage remains above lender minimum thresholds, indicating structural resilience.
Capital Structure Assessment
At 2.65x SDE with projected DSCR above 2.7x, the proposed capital structure appears sustainable under current earnings assumptions.
Long-term stability remains dependent on technician retention and service demand consistency.
BAM Risk Profile
Earnings Stability: Moderate
Capital Structure Strength: Low
Operational Exposure: Moderate
Revenue Volatility Sensitivity: Moderate
Overall Risk Tier: Moderate
Investment Thesis
This opportunity presents a balanced capital structure with meaningful post-debt income potential.
However, earnings durability and customer concentration should be verified during due diligence.
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