Buying a competitor: a first-acquisition guide

Why buy instead of build

Growing by acquisition buys time. Instead of spending years building a customer list in a new area or service line, you buy one that already exists, along with trained staff, a phone number customers know and reviews that took a decade to earn. The trade-off is a large, concentrated risk: you pay up front for value that can leak away if the transition is handled badly.

Survival data explain why established companies are worth a premium. Of US private establishments opened in March 2015, 79.6% were still operating a year later, 50.2% after five years and 34.6% after ten^[1]. A competitor that has made it past ten years has shown its market, pricing and reputation work.

Where acquisition targets come from

Most good small acquisitions are never listed for sale. They are owners nearing retirement without a successor, partners who have fallen out, or operators tired of running the office at night. The market is full of small firms: 76.8% of plumbing, heating and air-conditioning contractor establishments had fewer than ten employees in 2023^[3], and there were 178,663 such businesses with no paid employees at all^[4].

• Suppliers and distributors know which owners are slowing down; ask your branch manager.
• Trade association meetings and local licensing board lists surface long-established names.
• Your own technicians often know which competitor's owner is thinking of retiring.
• Business brokers list some deals, usually with more competition and higher asking prices.
• A short, respectful letter to owners of well-reviewed companies, saying you would be interested if they ever consider selling, starts conversations that may take years.

What you are actually buying

List the assets before you talk about price. In a small service company, the trucks and tools are usually the least valuable part. The real value sits in things that may or may not transfer to a new owner.

• Customers: active service customers, maintenance agreement members and their renewal history.
• People: technicians and office staff, and whether they will stay.
• Phone numbers and web presence: the main number, the domain, the Google Business Profile and its reviews.
• Contracts: commercial service agreements, builder relationships, warranty obligations.
• Licenses: often tied to a person, the qualifier, rather than the company, so they may not transfer.
• Equipment and inventory: trucks, tools, parts stock, at fair market value.

Valuing a small service company

Small service businesses are usually valued on normalized owner earnings, often called seller's discretionary earnings: net profit plus the owner's salary, owner perks run through the business and one-time items, minus any costs you will face that the seller did not pay. A multiple is then applied, with the multiple depending on size, recurring revenue, owner dependence and growth.

Example: a company reports 180,000 net profit. The owner also takes a 90,000 salary and runs 15,000 of personal vehicle and phone costs through the business, giving 285,000 of discretionary earnings. But the owner works 60 hours a week as service manager and estimator, and replacing him will cost 95,000 in salary and benefits. The earnings a non-working buyer can expect are closer to 190,000, and that is the number the multiple should apply to.

Recurring revenue, such as maintenance agreements and commercial service contracts, raises value because it is likely to continue under new ownership. Revenue that depends on the seller's personal relationships lowers it, and is the main reason for earnouts and seller notes.

Financing the deal

Many first acquisitions use an SBA-backed loan. The SBA lists changes of ownership, complete or partial, among the eligible uses of a 7(a) loan, and states the maximum 7(a) loan amount is $5 million^[2]. Lenders will want to see the target's tax returns, your own experience in the trade and a plan for the transition.

• Seller note: part of the price paid to the seller over time, which keeps the seller invested in a smooth handover.
• Earnout: part of the price tied to revenue or customer retention after closing, useful when value depends on relationships.
• Equity from savings or partners: lenders usually expect the buyer to put money in.
• Working capital: borrow enough to run payroll for the first months, not only to pay the price.

Due diligence checklist

Asset purchase or stock purchase

Most small acquisitions are structured as asset purchases: you buy the assets and goodwill and leave the seller's old liabilities behind. The IRS says both the seller and the purchaser of a group of assets that makes up a trade or business must file Form 8594 when goodwill or going concern value attaches to the assets^[5]. Buyer and seller should agree on how the price is allocated across equipment, customer lists, non-compete agreements and goodwill, because the allocation affects both sides' taxes. Get an accountant involved before the letter of intent, not after.

Keeping the customers you paid for

The most expensive mistake in a small acquisition is changing how customers reach the company. Pew Research Center found eight in ten Americans do not generally answer their cellphone when an unknown number calls^[6]. If you switch the acquired company's number to yours, or let calls go unanswered during the handover, customers who call the old number and get no answer will not wait for your callback.

1. 01

   Keep the number and the name

   Port the acquired company's numbers to your phone system and answer them with the old company name for months, not days.

2. 02

   Announce it from the seller

   Send a letter or email from the seller introducing the new owner, saying what stays the same and naming the technicians customers know.

3. 03

   Retain key people

   Meet every technician before closing if the seller agrees, and consider retention bonuses paid at 6 and 12 months.

4. 04

   Honor agreements and warranties

   Service every maintenance agreement on schedule and honor existing warranties, even where the contract would let you refuse.

5. 05

   Transfer online assets

   Move the domain, website and Business Profile ownership to you, keeping reviews intact.

6. 06

   Keep the seller close

   A paid transition period, often a few months, lets the seller introduce you to key accounts.

Integration: what to change and when

New owners usually want to standardize everything at once: software, pricing, uniforms, truck wraps. Resist that. Customers and staff of the acquired company need time to trust you, and every change in the first months is a reason for a technician to leave or a customer to call someone else.

• First 30 days: change nothing customers see. Learn the schedule, the pricing and the people. Fix only safety and compliance problems.
• Days 30 to 90: move back-office systems such as payroll, accounting and insurance onto yours, with care to keep paychecks on time.
• Days 90 to 180: align pricing and service agreements gradually, starting with new customers, and move the field team onto your field service software after training.
• After six months: decide on branding, with customer retention and reviews as the test.

Write the integration plan before closing and share the first-month version with the acquired team on day one. Uncertainty drives more departures than any single change.

Example: a first acquisition

Example (fictional): Ridgecrest Heating, with nine trucks, bought a four-truck competitor whose owner was retiring after 22 years. The deal combined a bank loan with a seller note, and the seller stayed on for four months. Ridgecrest kept the old company's name on the trucks and phones for a year, ported the number into its own phone system, and kept the seller's office manager.

The one problem was a mechanical license held personally by the seller; Ridgecrest's own license covered the work, but two municipal contracts had to be reassigned. Retention of maintenance agreement members after the first renewal cycle was close to the seller's historical rate, which the buyer credited to the unchanged phone number and the seller's letter.

Before you sign

Read preparing your service business for sale from the seller's side; it shows what a well-prepared target looks like. If the acquisition is in a new area, compare it with opening a second location, and if you are weighing a franchise purchase instead, see franchise vs. independent.