WSJ Your Money Briefing - The Millionaire Next Door Could Be Your Plumber

Episode Date: October 14, 2024

Private-equity firms are spending millions of dollars to purchase HVAC, plumbing and electrical companies. Wall Street Journal reporter Te-Ping Chen joins host J.R. Whalen to discuss how it is boosting income for some skilled tradespeople as well as how it impacts services they provide to consumers. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

How do airplanes fly? What's in this box? What does this thing do? Kids are curious about everything, including guns. Learn how to store your gun securely and make your home safer at nfamilyfire.org. Brought to you by N Family Fire, Brady, and the Ad Council. Here's your money briefing for Monday, October 14th. I'm JR Whalen for The Wall Street Journal. October 14th. I'm JR Whalen for The Wall Street Journal. Private equity money isn't just for the heavy hitters on Wall Street. PE firms are pouring money into skilled trade small businesses, just like the ones in your neighborhood, that employ plumbers and HVAC technicians.

One company that we spoke to that said the technicians at the businesses they acquire get roughly a 20% pay bump through an increase in both wages and bonuses and commissions. We'll talk with Wall Street Journal reporter Teping Chen after the break. Private equity firms have purchased nearly 800 skilled trade companies since 2022. Wall Street Journal reporter TaPing Chen joins me. TaPing, some plumbers and HVAC workers are becoming millionaires as a result of private equity buying their businesses. Why are the PE groups doing this? So private equity has made inroads in a lot of other industries where they're pursuing similar strategies of buying up these smaller companies and rolling them up into bigger entities and so the skill

trades to a lot of investors seem similarly ripe with opportunity. You're also talking about an industry where it's a lot of recurring pretty predictable revenue, right? Air conditioners are going to break, boilers are going to need upgrades. And so if you're an investor looking for steady returns, there's a lot to like. How much are the firms paying for these small businesses? It really does range. There are smaller operations that might be getting say a million dollar payout and there are bigger ones that would be getting eight figure payouts. Oh wow, how is this transforming the careers of workers at these companies? In a lot of different ways and obviously there's many different sorts of experiences on the ground and many

different kinds of investors that are gonna bring different management styles. You do see some where workers complain that they feel like they're getting pushed more to become salespeople than doing repairs, having to upsell customers, etc. But you also speak to other workers who feel like they're working for more professionalized kinds of businesses that as they grow bigger, they have more advancement opportunities and more managerial opportunities. And, you know, for owners, obviously, there's a lot of upside. Plenty of owners are ambitious for their companies and want to be able to grow and expand their territories and bundle up new services or what have you. And private equity many times can bring the resources that make that possible in ways that might not have been on their own, especially when they're trying to run a business and are pretty consumed with the

day-to-day. There are also private equity firms that would say that their acquisitions end up benefiting the workers and in some cases they can point to data showing that pay of the average technician does go up post-acquisition. There was one company that we spoke to that said the technicians at the businesses they acquire get roughly a 20% pay bump through an increase in both wages and bonuses and commissions. So depending on who you talk to, it's a mixed picture. Teping, you were with us a few months ago talking about how there's a shortage of skilled tradespeople. How is this changing things? There's a lot that's happening in the industry right now. We have spoken to some private

equity companies who are doing things like increasing recruiting budgets and training budgets. So it's possible that some of these private equity backed companies will be better positioned to help recruit workers. That's one possible outcome. But one other effect that owners we've spoken to have said is that this interest from private equity in some ways is validating almost for people in the skilled trades and maybe can be encouraging for folks too who are considering what path they want to take because look, it's not just as one owner in Florida who recently sold said to us like, you're not just the plumber

fixing the toilet. You're now a plumber fixing a toilet who has people from Wall Street courting you. And so that's validating that that's empowering. It's a sense of being seen. You spoke with the owner of a plumbing business in Arizona who was approached by a private equity-backed company. What was his experience? His experience, like a lot of owners in the industry, was that getting a lot of potential

investors interested in buying his company, and this has been happening for years now. And he, like many owners, resisted selling, feeling like, I don't want to sell to someone at a state who doesn't know my customers, doesn't know my people. And so he'd said no for a long time. And then he was finally approached by a local, bigger HVAC company that had recently been acquired by a private equity-backed home services firm. And at that point, he said yes, because it was a great opportunity. Valuations have been high.

It also was a buyer that he felt good about. This feeling that he wasn't just going to be purchased by someone out of state who had no roots. And also he liked the management style of this private equity firm that really places an emphasis on allowing owners to continue to have a big say in management, that, you know, still wanting them to keep major stakes in the company. And that kind of ethos and worldview in the end was what ended up being persuasive to him and he's been happy. He's stuck around and he plans to stick around for another seven odd years until he retires. What does the influx of all this money mean for the services that these skilled trade companies provide to consumers? We are still in the early phases of this

sort of investor interest. There's a lot of potential for this to continue to take over more of the industry. I think you will be facing a industry with potentially fewer players that have been rolled up into bigger entities that will be more professionalized and have better technology and better training for their technicians. So maybe instead of waiting around for half the day, you'll have access to snazzy text message system that will let you know when your technician is on route, you'll get faster callbacks and potentially bigger fleets to service you in the case that something breaks in the middle

of the night, like you might get faster response. And these are all things that can be great for consumers. There is also concern, certainly among some homeowners and folk in the industry, that this will have the impact of essentially raising prices for consumers because of course you've got investors who are looking at the bottom line and who are trying to make sure that these companies that they're taking stakes in are operating to the best of their financial ability and meeting their targets. As a homeowner, you may end up potentially with better service and you also likely will be paying more for it.

That's WSJ Reporter Tuping Shen. And that's it for your money briefing. This episode was produced by Trina Menino with supervising producer Melanie Roy. I'm JR Whalen for The Wall Street Journal. Thanks for listening.