In today’s M&A environment, not every company is going to command “headline” valuations. The HVAC industry is a great example of why — and it offers lessons for business owners across many sectors.
The Challenge of Low Margins
Consider an HVAC company with $20 million in revenue but only $700,000 in EBITDA — a margin of just 3.5%. Compare that to industry averages of 10–15% for strong operators, and you see the challenge: on paper, the company looks unremarkable. If we rely only on EBITDA multiples, the valuation would fall short of the owner’s expectations.
But here’s the key: businesses like this can still be highly attractive acquisition targets. The value just isn’t in today’s profit number.
Where the Real Value Lies
For many buyers, particularly strategics and private equity platforms, what matters is the potential. A larger acquirer can plug a company like this into its existing infrastructure, reduce costs, and improve margins. Even a modest margin improvement can double or triple EBITDA — which dramatically changes the economics of a deal.
In other words, low-margin businesses often sell based on what they could be under new ownership, not just what they are today.
Non-Financial Drivers Buyers Care About
Beyond the numbers, there are other critical assets that make targets attractive:
- People: A skilled workforce is gold in industries facing labor shortages.
- Customers: Service contracts and recurring revenue streams are especially valuable.
- Geography: A strong local footprint may be the missing puzzle piece for a consolidator.
These assets can sometimes outweigh weak profitability in the eyes of the right buyer.
Who the Right Buyers Are
Low-margin businesses typically aren’t a fit for investors looking for standalone cash generators. Instead, they’re a match for:
- Strategic acquirers who can fold the business into their existing operations.
- Private equity platforms executing “roll-up” strategies, where improving margins at scale creates significant value.
Both groups evaluate these deals through the lens of synergies and future potential.
The Takeaway for Business Owners
If your company runs on slim margins, it doesn’t mean you can’t attract buyers or achieve a strong exit. It does mean you’ll need to carefully position the business — highlighting your people, customers, and strategic value — rather than relying on today’s bottom line.
As M&A advisors, we help owners reframe the conversation from “what the business is today” to “what it can become in the right hands.” That shift can unlock opportunities that financial metrics alone would overlook.