Washington Gas Light Co. and Thayer Capital Partners, a Washington investment firm, yesterday formed a venture to buy up local home heating and air-conditioning service firms, aiming to become the region's biggest company in that business.
Thayer and Washington Gas each will invest $25 million in the new firm, Primary Investors LLC, which has hired Louis Pearsall, a veteran Carrier Corp. executive, to run its operations.
Thayer Chairman Fred Malek said the new venture expects to announce the acquisition of "a couple of mid-sized companies" in the residential heating and cooling business within the next few weeks.
"Our goal is to create a company that has $250 million a year in revenue and 20 percent market share in this market," he said.
That would make the company "the biggest of its kind anywhere," Pearsall said. While there are many large companies in the commercial plumbing and heating business, 90 percent of the residential firms have sales of less than $2 million a year.
The first firm to be acquired, Prime Service Group of Fairfax, is about a $10 million-a-year business, which puts it in the top two percent of the industry, he said.
Made up largely of family-owned businesses, the home heating and air-conditioning industry is the latest fragmented business to be targeted for consolidation by firms hoping to become the McDonald's of furnaces and air conditioners.
Nationwide, at least three other heating and cooling "roll-up" firms have sold stock to the public and are starting to build national chains. Malek said Primary Investors will concentrate on the District, Maryland and Virginia and will expand into other markets only after building its operation here.
"Most of the HVAC [heating, ventilation and air conditioning] roll-ups have been done without any geographic concentration and therefore without any true synergies," he said. Assembling a large company in one market will make it possible to get lower prices for supplies and parts, make better use of field crews, and centralize billing, dispatching and other management operations, Malek added.
Washington Gas is one of several utility companies that have decided to expand into services to overcome the limited opportunities for growth in their basic business. But the gas company will keep the new venture separate, rather than offer services as part of its utility operations, spokesman Tim Sargeant said.