Search funds are quietly becoming one of the largest buyer categories in the HVAC market. In the last three years, the number of active search funds has grown from fewer than 50 to over 150 across the United States. Each one is hunting for an HVAC business to acquire. If you've been approached by a search fund — or are considering one — you need to understand what you're actually dealing with.
The pitch is straightforward: a search fund operator buys your HVAC business, keeps the existing leadership and systems in place, and builds the platform from there. Sounds collaborative. But the reality is more nuanced. Here's what every HVAC owner should know before signing.
What Is a Search Fund, Actually?
A search fund is a simple structure, but it's worth understanding the mechanics:
- One or more individuals (the "searcher") raise capital — typically $500K to $2M — from friends, family, and wealthy individuals
- That capital sits in a fund while the searcher spends 12–24 months looking for a business to acquire in a specific industry or geography
- Once they find and acquire a business (using the fund capital plus leverage), the searcher becomes the CEO of that acquired company
- The investors who funded the search now own equity in the acquired business alongside the searcher
- Everyone holds for 5–10 years, then exits (usually to a PE buyer or another consolidator)
The search fund model is popular for HVAC, plumbing, and electrical because these industries are highly fragmented. A single company acquiring five or ten existing operators and consolidating them can become very valuable very quickly.
The Search Fund Pitch: Why They Want Your Business
When a search fund operator knocks on your door, they're not looking to replace you — at least, not immediately. What they're really looking for is what you've built: an operating HVAC company with customer relationships, technician teams, service routes, and cash flow. They believe they can bolt on five or ten more companies just like yours and create something much larger and more valuable.
"The search fund model works because it's a founder-friendly acquisition structure. The original owner often stays on as an operating partner, and because the searcher is the CEO, there's less corporate overhead than you'd see with a PE buyout." — Small business acquisition trends, SBDC.
The pitch from a search fund will usually include: a premium on what you might get from an independent buyer (because they have institutional capital behind them), a role for you post-acquisition (either as an ongoing operator or consultant), and the promise of rapid growth through add-on acquisitions.
What You're Actually Giving Up
Before you get excited about the offer, understand what changes when a search fund acquires you:
Control shifts away from you. Once the search fund closes, the searcher becomes the CEO. You might be retained as an operating partner or on the leadership team, but the strategic decisions belong to them. If they want to rebrand, change your pricing model, or overhaul your customer communications, that's their call.
Your culture and identity get consolidated. When that searcher starts buying companies three and four, they'll be blending your unique culture with three other HVAC companies' cultures. What made your company special — maybe a specific service guarantee, a unique hiring philosophy, a reputation in your local community — often gets lost in the consolidation.
You're on a timeline you don't control. The search fund investor base expects a return in 5–10 years. That means the searcher is under pressure to acquire, consolidate, and prepare for a sale. If you thought you'd coast for a while post-acquisition, think again. This is going to be an intense period.
"Search fund acquisitions of HVAC businesses have shown solid returns for investors, but operator satisfaction varies significantly. The operators who regret the deal are almost always the ones who expected a slow, founder-friendly transition and got a high-intensity integration instead."
Leverage and debt become your problem too. Most search fund acquisitions are financed with a mix of equity and debt (usually 40% equity / 60% debt is common). That debt has covenants, and if something goes wrong operationally, the searcher — and by extension, the rest of the leadership team — feels the pressure. That stress flows down.
The Financial Terms: Revenue vs. EBITDA
Here's where it matters to pay attention. Search funds buying HVAC businesses typically offer 2–4x revenue multiples. A $3 million revenue HVAC company might get an offer of $6–$12 million.
Compare that to what traditional PE might offer: 4–7x EBITDA (which is usually higher than revenue multiples on profitable companies). A $3 million revenue HVAC company generating $400K in EBITDA might fetch $1.6M–$2.8M from traditional PE.
Wait — why would the search fund offer more? Two reasons: (1) They're trying to attract sellers because they're a less-established buyer category, and (2) They're banking on being able to improve margins and synergies post-acquisition, justifying the premium they paid upfront.
The problem: if those synergies don't materialize, the searcher is overstretched. And if they're overstretched, they might push harder on your operations to deliver results, or they might make riskier acquisition decisions to hit their targets.
A search fund's offer to buy your business is really an offer to let them use your business as the foundation for a rollup they hope to sell in five years. Make sure you want to be part of that journey.
Search Fund vs. Growth Equity: Which Is Better?
If you're comparing a search fund offer to other options, here's what matters:
Search Fund: You get a premium offer, you stay involved as an operating partner, but you lose strategic control and you're on someone else's timeline for growth and exit.
Growth Equity (like Lightning Path Partners): You bring in a capital partner who doesn't need to own 51%+ of the company. You retain control of strategy, culture, and timing. You're growing together, not under pressure to hit quarterly targets.
Traditional PE: You get a solid offer, maybe a retention bonus, but you're definitely losing operational control and you're in a rollup that will be sold within 5–7 years whether you like it or not.
Going It Alone: You keep 100% control and 100% of the upside, but you're responsible for all the growth capital, marketing, hiring, and operational improvements. No safety net.
The Right Fit: Will a Search Fund Work for You?
A search fund makes sense if: you want to cash out now (even though the offer might be lower than PE), you're tired of being the owner and want to be an operator, you believe in the searcher's vision, and you can handle being part of a fast-growth rollup.
A search fund doesn't make sense if: you want to remain in control, you love your company's culture and identity, you're not excited about rapid acquisition and integration, or you think you can grow faster and more profitably on your own (or with a minority growth partner).
The Questions to Ask Before You Sign
If you're seriously considering a search fund offer, ask these questions:
- Who are your fund investors, and what are they expecting? If the searcher's investors are pushing for aggressive returns, that means aggressive growth pressure flowing down to you.
- What's your M&A timeline? How many add-on acquisitions are planned, and when? A searcher planning seven acquisitions in three years is different from one planning two acquisitions in four years.
- How will you measure my performance post-acquisition? Get clear on the metrics and expectations. If you're retained, what does success look like?
- What happens to me if an acquisition goes sideways? If a bolt-on company doesn't integrate well, do you fire the original operator (you) or the acquired operator?
- What's the exit plan, and do I have a voice? When does the searcher plan to sell, and who decides? Can you prevent a sale to a buyer you don't want to work for?
The Bottom Line
Search funds are legitimate buyers and have created real value for many HVAC owners. But they're not a magic ticket. You're trading control for capital and growth infrastructure. Make sure that trade makes sense for you specifically, not just because the offer is appealing.
If you want a capital partner who brings resources without requiring majority control or a fixed exit timeline, there are other options. The goal is to make a conscious choice, not to get swept up in the excitement of a bidding war.
Frequently Asked Questions
What is a search fund and how does it differ from PE?
A search fund is a partnership between individual operators and investors. One (or a small team) searches for and buys a small business, then operates it for 5-7 years before exit. PE firms buy already-operating businesses, layer on management, and roll up acquisitions. Search funds are more founder-like in structure; PE is more institutional. Search funds often preserve founder involvement; PE restructures aggressively. Search funds work best for specific, bought-and-held companies; PE is geared toward platforms.
What do search funds typically pay for HVAC businesses?
Search funds typically target $1-3M revenue HVAC companies priced at 3-4x EBITDA. They're willing to be patient and value long-term cash flow. Multiples are lower than PE offers because search funds have less leverage and institutional capital. However, search funds often allow founder involvement and future upside participation. A search fund might offer 3.5x EBITDA on a $500K EBITDA HVAC business; PE might offer 4.5x. The trade-off is involvement and culture fit.
What are the pros and cons of selling to a search fund?
Pros: Founder often stays involved, culture is preserved, upside sharing is possible, less operational disruption. Cons: Search fund payoff is delayed (5-7 years vs. immediate with PE), less capital for growth/add-ons, smaller investor base (less certainty they'll close), deal terms can be vague. Selling to search funds works if you want to keep operating and believe in long-term value creation. If you want full exit and liquidity now, PE is faster and more certain.
Further Reading & Resources
- Stanford Search Fund Primer — gsb.stanford.edu - Comprehensive guide to search fund mechanics
- IBISWorld HVAC — Market data to validate valuation claims
- ACCA.org — HVAC industry connections for search fund operators
A Search Fund Is One Option.
We're Another.
Unlike search funds, we don't need to replace you. We invest in HVAC operators who want to keep building — and bring the marketing systems and growth capital to help you get there faster.
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