The Millionaire Next Door Could Be Your Plumber
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Here's your Money Briefing for Monday, October 14th. I'm J.R. Whelan 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.
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Private equity firms have purchased nearly 800 skilled trade companies since 2022. Wall Street Journal reporter Teping Chen joins me. Teping, 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 is private equity buying skilled-trade businesses like plumbing and HVAC?
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 going to bring different management styles. You do see some where workers complain that they feel like they're getting pushed more to become sales people 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 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 makes that possible in ways that might not have been possible. 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.
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