Southern New England Energy Conference
At the Southern New England Energy Conference in Newport, R.I., the lineup included: Alan Wornham of R.W. Beckett on developments in burner technology; NORA presentations on renewable diesel and biodiesel; Paul Nazzaro of Advanced Fuel Solutions on “The Four Pillars of Bioheat Fuel Industry Success;” Ed Cobb, a commodities consultant, and NORA Director of Education Bob O’Brien, discussing preparations for higher blends of biofuels.
Frederica Miano of Eurofuels and Dr. Ernst-Moritz Bellingen of en2x energy, participating in a panel with NORA President Michael Devine and NORA Technical Director Dr. Thomas Butcher.
Jeff Simpson, managing member of Notch Capital in Simsbury, Connecticut, was a featured speaker at the Conference, which was held Sept. 23-24. Simpson delivered a presentation titled, “Accessing New Sources of Capital for Growth.”
“We bring capital in to help [fuels and HVAC] companies grow through acquisition and other initiatives,” Simpson said of Notch Capital in an interview after the conference. “Ever since the pandemic, HVAC has been a hot business line because it’s very steady,” Simpson said. “During the pandemic, when a bunch of other businesses were effectively closed, the HVAC world just kept humming along.”
Since 2022, private-equity investors have purchased approximately 800 HVAC, plumbing and electrical companies, The Wall Street Journal reported in October, citing data from PitchBook. The Journal noted that acquisitions of smaller HVAC companies, had they also been tracked, would likely have driven the number still higher.
Simpson set about dispelling some “myths about private capital,” specifically that it is difficult for fuels and HVAC companies to access because private investors “don’t like fossil fuels.” If a company’s lineup of products and services includes propane and HVAC, then “a well-run heating oil division with strong service and installation activity can add value,” Simpson said in his presentation.
Smaller companies are attracting interest as well, Simpson said, defining “smaller” as “generally, $2 million to $3 million adjusted EBITDA or higher.”
Some owners worry that striking a deal for private capital means giving up equity and/or control, but “non-dilutive private debt is also accessible,” Simpson said, further noting that requirements as to control and governance differ by capital provider.
The cost of private capital is commensurate with risk, Simpson said. “There are many capital sources looking to put money to work,” he said. “If you have prioritized growth via acquisition, keep the larger goal in mind: the creation of value.”
That private equity will gut staff and expenses and “flip” the company is another concern of some owners, Simpson said. But many financial buyers “value the team and look to build upon it,” he said. According to Simpson, “57% of lower middle market deals last year included a seller equity rollover component, showing that alignment with the seller and industry expertise is valued.”
Simpson emphasized, “A company’s ability to access these sources of capital generally kicks in when they reach a certain minimum size—whether as a standalone or via acquisition—of $2 million to $3 million in EBITDA.” EBITDA stands for earnings before interest, taxes, depreciation and amortization.
Jeff Simpson can be reached at (860) 299-3358 and jsimpson@notchcap.com.
