The Valuation Gap Is Real — and It’s Growing
Private equity has discovered the MEP trades.
Since 2020, private equity has been buying MEP contractors at a serious pace. PE-backed buyers nearly doubled their deal volume in 2021, and investors have acquired close to 800 HVAC, plumbing, and electrical companies since 2022 alone, according to PitchBook data.
The strategy is consistent: acquire a platform company, then roll up regional contractors in the $20M–$150M range.
What those buyers have figured out along the way should matter to you, whether you're thinking about an exit or not.
Two contractors with the same revenue, same margins, and same backlog can get very different offers. One gets 8–12x EBITDA. The other gets 4–6x. On a $10M EBITDA business, that's a $40–$60 million gap. And it has nothing to do with how hard you've worked or how good your crews are.
It comes down to risk. Specifically: can a buyer see clearly into your business, or do they have to take your word for it?
What Buyers Are Actually Checking
Think about what happens when a buyer asks, "What's your current margin on active projects?"
If your answer is "let me get back to you by the end of the week," you've already told them something important about how the business runs. They'll still make an offer. But it'll be lower.
PE due diligence on MEP contractors comes down to five questions. Knowing them changes how you run the business today.
1. Can I see your financials right now? Not "can you pull them together" — right now, in a dashboard. If getting the answer means digging through three spreadsheets and reconciling the numbers by hand, the buyer discounts the valuation. They can't price what they can't verify. So they assume the worst.
2. What happens when key people leave? If your business runs because of one owner, one star PM, or one controller who keeps everything in their head, that's a liability on the deal sheet. Processes embedded in a platform keep running when people leave. Processes that live in people don't.
3. How hard is this to integrate into our existing portfolio? PE buyers aren't just buying you — they're building something. A completely different tech stack and set of processes means integration work, and that work gets priced into (or out of) the offer. Every additional month of integration time reduces what they're willing to pay today.
4. Can we trust the data? WIP, revenue recognition, backlog quality, customer concentration — buyers verify all of it. Companies with clean, system-generated financials hold up in diligence. Companies that reconstruct reports by hand tend to spend the final weeks before close in damage control.
5. What do we have to spend after closing? If modernizing the tech stack costs $1–2M post-acquisition, that comes straight out of the purchase price. Not out of the buyer's margin. Yours.
The #1 newsletter for the trades.
How to Build a Business That Commands a Premium
You don't need to be actively planning a sale for this to matter. The moves that make a business sellable are the same ones that make it run better right now.
Get onto one platform. ServiceTitan is built specifically for the trades, not adapted from generic field service software. Unified service and construction operations, real-time financial reporting, workflows that live in the system instead of in someone's notebook — that's what a buyer wants to see when they open the hood. And it's what your ops team needed three years ago.
Run it like someone's watching the numbers every day. Real-time KPIs, accurate WIP, clean job costing. Not for a future buyer. For yourself, right now. The contractors who are most ready to sell are almost always just the ones who've been running tight operations all along. That's not a coincidence.
Prove you can scale without everything breaking. Show that revenue can grow 25–50% without headcount growing at the same rate. That's the real question in every PE growth model. Does this business have operating leverage, or does every new dollar of revenue require another hire? Contractors on integrated platforms like ServiceTitan have averaged 21% revenue growth in their first two years. Because when you can finally see everything clearly, you stop leaving money on the table.
