Buying an HVAC and Refrigeration Company: The Math Behind 2.5x Earnings

If you browse small businesses for sale long enough, you notice something odd. A heating, cooling and refrigeration company with a $1.5 million book of business and a few hundred thousand dollars of owner earnings often sells for less than a nice house in a decent suburb. BizBuySell’s data on sold HVAC businesses shows a median sale price of $750,000 on median revenue of $1,482,016 and median owner earnings of $304,309.

That is not a typo, and it is not free money either. I want to walk through why these companies trade at the prices they do, what a purchase looks like with an SBA loan, and what the earnings number is quietly hiding. I am not a financial advisor, and none of this is financial advice or a suggestion to go buy one. It is the math I would want in front of me before I even called a broker.

Why trade companies sell for two to three times earnings

BizBuySell’s sold HVAC businesses went for a median of 2.58 times owner earnings, with the middle half between 1.99 and 3.33. Public companies trade at many times that. So why so cheap?

Because “owner earnings” (seller’s discretionary earnings, or SDE) includes the owner’s own paycheck. If the seller is also the lead tech, the estimator and the person every commercial customer calls, then part of what you are “buying” walks out the door at closing. The multiple is low because the risk is high: you are paying for a business whose value is partly a person.

The companies at the top of that range are usually the ones where the owner already stepped back: techs who stay, maintenance agreements that renew, and customers who call the company, not the owner’s cell phone.

A hypothetical deal, start to finish

Let me run a made-up purchase at the BizBuySell medians. These are not real numbers from a real deal, and the interest rate is an assumption for illustration only. SBA rates float with the prime rate, so yours will differ.

Line	Hypothetical
Owner earnings (SDE)	$304,309
Price at 2.58x	$785,117
Down payment at 10%	$78,512
Loan amount	$706,605
Payment, 10 years at an assumed 10%	About $9,338 a month, $112,054 a year
Left after debt service	About $192,255 a year

The 10% down is not my guess. Under the SBA’s SOP 50 10 8 rules, a complete change of ownership needs a minimum equity injection of 10%, as Live Oak Bank explains it.

On paper, roughly $192,000 a year left after the loan payment sounds great. But remember what SDE includes. That $192,000 has to cover your own salary for doing the owner’s job, plus taxes, plus replacing vans and equipment. If you plan to hire a general manager instead of running it yourself, a big chunk of that disappears.

Now stress it. If earnings drop 20% in the first year, which is not unusual when an owner leaves and a few customers follow, SDE falls to about $243,447. Subtract the same $112,054 payment and you have roughly $131,393 before your own pay. Still positive, but the cushion got thin fast. This is why I care more about how a business behaves after the owner leaves than about its best year.

What the demand side looks like

The labor numbers are the clearest signal I know. The BLS counts 440,900 HVAC and refrigeration mechanics in 2025 and projects 489,100 by 2035, an 11% increase, with a median wage of $61,010. Employers keep needing these people because buildings keep needing cold air and cold storage.

Regulation is adding work too. The AIM Act is phasing down high-warming HFC refrigerants, with restrictions on new equipment that began as early as January 2025 and compliance dates that run to January 2028. Every one of those changes means some customer needs advice, a retrofit or a replacement. And every tech who touches refrigerant needs EPA Section 608 certification, which keeps casual competitors out.

The flip side: rule changes also mean more training, new tools and refrigerant prices that move. A tailwind for revenue can be a headwind for margins in the same year.

Margins are thinner than the brochure

A firm that reviews HVAC books for private equity buyers says most companies net somewhere between 5% and 12%, with a few reaching 15%, even though service work alone often runs 55% to 65% gross. Overhead eats the difference: dispatchers, trucks, insurance, marketing, office rent.

So when I read a listing, I look for the mix. Service calls and maintenance agreements are the steady, high-margin part. Big install projects are lumpier and lower margin. A commercial refrigeration shop that lives on service contracts with restaurants and grocers is a different animal from a residential installer chasing new system sales through ads.

The refrigeration angle I find most interesting

Commercial refrigeration has a corner most buyers overlook: the small refrigerated equipment out in the world that nobody wants to fix. Vending machines and glass-door coolers are refrigeration appliances. When one dies, the owner often waits days for help. O*NET lists the median wage for vending machine repairers at $22.81 an hour, far below refrigeration mechanics, and many of them do not do sealed-system work.

To me that looks like a small, sticky revenue line for a refrigeration company: a flat-rate maintenance plan for local route operators. It will not make or break a deal, but it is the kind of boring add-on that turns a few phone calls into a recurring schedule. If you want the operator-side detail on licensing, refrigerant rules and how vending repair fits, this commercial refrigeration business guide covers it.

My checklist before calling a broker

1. Who answers the phone? If every commercial customer has the owner’s cell number, discount the earnings.
2. How many techs, and how long have they stayed? Techs are the real asset. Ask about tenure, certifications and pay versus the local market.
3. What share of revenue is maintenance agreements, and what is the renewal rate?
4. Customer concentration. If one grocery chain is a third of revenue, you are buying that contract.
5. Fleet age. Old vans are a capital bill waiting to arrive after closing.
6. Will the seller stay for a transition? Six to twelve months of introductions can protect the relationships you are paying for.

I like to judge any purchase by how long it takes to get my money back, which I wrote about in the payback period number I trust. In the hypothetical above, your $78,512 down payment comes back in well under a year of post-debt cash flow if the business holds steady. That fast payback is exactly why the risk deserves so much attention: the market does not hand out quick paybacks on businesses that run themselves. If you are still weighing how your own hours are best spent, this dollar-per-hour exercise is a good companion to the deal math.