For decades, construction and trades businesses have operated on a simple model: complete a job, collect payment, find the next one. Revenue arrived in irregular bursts tied to project timelines. That model now works against owners at the moment they most need to show value: when they try to sell.
Industry transaction data supports this shift. Over the past several years, private equity (PE) firms have been buying and combining HVAC, plumbing, and electrical businesses at a rapid pace. In HVAC services alone, add-on acquisitions, or smaller companies bought to expand an existing PE-owned business, rose an estimated 88% year over year through mid-2025. Roughly two dozen PE-backed companies are competing for these deals.
But buyers aren’t paying the same valuation multiple for every business. A multiple is the figure a buyer multiplies a company’s earnings by to set a sale price. According to BizBuySell’s 2024 transaction data, businesses with limited recurring revenue that depend heavily on the owner sell for 1.8 to 2.2 times seller’s discretionary earnings (SDE). SDE measures the total financial benefit a business provides its owner. Comparable businesses with more than 30% recurring revenue and documented processes sell for closer to 2.8 to 3.0 times SDE.
Among larger companies, Capstone Partners and PitchBook data show PE buyers paying 6.0 to 7.5 times EBITDA (earnings before interest, taxes, depreciation, and amortization) for HVAC companies with at least 50% recurring revenue. That is well above what project-based companies of similar size typically receive.
Jim Tassoni is managing director at Ridge Trail Capital, which advises companies on mergers and acquisitions (M&A), primarily those with $5 million to $50 million in annual revenue. He says some trade owners are changing how they run their businesses to attract buyers.
“One of the trends we’re starting to see that is making certain trades businesses much more attractive is a focus away from project-based revenue towards more recurring or subscription or maintenance revenue,” he says.
Tassoni describes project-based revenue as “lumpy.” “A lot of trades businesses, construction businesses, have gotten wise to the fact that their business is worth more if they have less lumpy revenue and more sustained stable revenue,” he says.
When revenue arrives unevenly, buyers view future earnings as riskier. As a result, they pay a lower multiple. This pattern matches the wide price ranges in the transaction data above. Businesses with steady, contract-based revenue are easier to finance, easier to merge into a larger company, and easier to grow through more acquisitions.
The details vary by trade, but the goal is the same: turn one-time customers into ongoing service customers. Tassoni says owners are looking for ways to put clients on maintenance contracts for work they have already done. He points to commercial HVAC as a clear example.
“If I’m a commercial HVAC guy, I’m going into the business, servicing this every quarter, twice a year, and they’re paying me monthly for that,” he says. Instead of waiting for a system to break down and answering a service call, the contractor signs the customer to a maintenance agreement. That agreement brings in predictable monthly income whether or not a repair is needed.
The same approach works in plumbing, electrical, and other trades, but the potential varies. Plumbing businesses, for example, tend to have less room for recurring revenue than HVAC companies. HVAC equipment needs regular servicing, which fits naturally with maintenance contracts.
Maintenance plans, inspection contracts, and service agreements turn occasional customers into steady sources of revenue. For owners, this requires a different approach to winning customers. The goal is not just to do the job well. It is to keep the customer under contract after the original project ends.
Tassoni says recurring revenue is one of the key factors buyers weigh beyond revenue and profit. “It’s not just about revenue or EBITDA,” he says. “How much of your revenue is recurring, how much of the business centers solely on you or the two or three business owners, things like that I think are really important to the value.”
A shift to recurring contracts doesn’t show up in a company’s financial statements overnight. Buyers give credit for a track record, not a plan. That is one reason owners who are years away from a sale are often advised to start early, rather than waiting until a sale is already in progress.
M&A advisory firms help owners prepare for a sale. They assess what a business is worth today, which changes could raise that value, and how long those changes take to show up in results a buyer will accept.
“I think the move from project-based revenue to service-based, subscription-based revenue is a trend we’re going to continue to see across construction and trades,” Tassoni says.
For construction and trades owners who are years away from selling, the valuation data points to a clear gap. Businesses with little recurring revenue that depend heavily on the owner often sell for less than similar companies that have already made the shift.
About the Expert: Jim Tassoni is with Ridge Trail Capital, a Great Lakes Midwest-based M&A advisory firm focused on manufacturing, logistics, and trades businesses.
This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
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