Why private equity investors pay 18x for service and 8x for construction

Private equity and institutional investors view service and replacement work differently from new construction work. That is why sponsors build platforms around a thesis for one or the other. The business model is different, the operations are different, and the way each asset is valued is fundamentally different.

A residential platform like Champions, Apex or Redwood is built to answer service calls, sell maintenance plans and replace failed equipment for homeowners. A construction platform is built to estimate, bid, staff and deliver projects for builders, general contractors and owners. The split runs through every trade we cover: HVAC and plumbing replacement vs. rough-in on new homes, electrical service and panel upgrades vs. new-construction wiring, roofing replacement vs. new-build roofs for builders, garage door repair vs. builder installs, and civil and site work, which is almost entirely project and bid based. Buyers underwrite them with different models, and they pay very different multiples. A company that does a lot of both usually gets priced closer to the lower one. We showed that in A 15% shift in revenue mix created a $60 million valuation gap, where two HVAC companies with about $15 million of EBITDA each sold at 16x and 12x, and the meaningful difference was construction exposure. Our recent coverage of the MSouth-backed USA Hometown Experts transaction shows the same thing: the deal reportedly priced at roughly 12x EBITDA, a low-double-digit multiple, with roughly 20% commercial construction exposure weighing on the price.

Why the valuation gap?

Demand drivers. Home builders sell a discretionary, rate-sensitive product. When mortgage rates rise or buyers pull back, starts fall and so does the work for every trade contractor tied to them. Commercial new construction works the same way: office, retail and multifamily developers and the general contractors who build for them start projects when rates, financing and the development cycle allow, and pull back when they don't. Replacement HVAC, plumbing and garage doors is non-deferrable. The unit fails, and the homeowner pays. A roof that leaks after a storm or reaches the end of its life gets replaced, and a failed panel or an EV charger installation brings in an electrician whether or not anyone is building nearby. That demand comes from an installed base that ages every year, regardless of where rates are. The builder-side version of each trade, from the new-home roof to the garage door hung before closing, rises and falls with starts.

Capital intensity. Builders carry land and work in progress, which makes them capital intensive. Construction subcontractors carry a version of the same burden: materials bought ahead of billing, progress billing, GC pay terms, and retainage held until a project closes out. An electrical or mechanical sub on a commercial job can wait months to collect the last of its contract. Civil and site contractors go further: they need bonding capacity to bid public work and a fleet of excavators, dozers and haul trucks to perform it, so their cash conversion cycle and capital spending look more like an equipment business than a service business. Residential service in HVAC, plumbing, electrical, roofing and garage doors is asset-light, and often runs with negative working capital, because the customer pays at or near the time of the job and maintenance plans are often paid up front. A buyer gets more free cash flow out of each dollar of service EBITDA.

Earnings volatility. New construction runs boom and bust. Service work is consistent. A roofer selling new-build roofs to a production builder can lose a large share of volume when that builder slows starts, while the same roofer's storm and age-related replacement book keeps coming. Storm work brings its own swings, which is why buyers look at how much of a roofing company's revenue depends on weather events. A buyer valuing construction earnings has to judge how much of today's backlog will be replaced once it is worked off. A buyer valuing service earnings can count agreements, measure renewal rates and model repair and replacement demand from the installed base.

Customer concentration and payment terms. Construction revenue tends to come from a handful of builders or general contractors. They set the payment terms, hold the retainage and can take a meaningful share of revenue with them when they leave. Those relationships are often held by the owner. Service revenue is spread across thousands of households or building owners who know your brand.

Recurring agreements and the labor model. Maintenance agreements put technicians in front of customers on a schedule, and those visits feed repair and replacement work. A service business also staffs to call volume, with technicians, dispatchers and comfort advisors, and can grow by adding trucks. A construction business staffs to backlog, with estimators, project managers and crews who are underused when bids dry up.

The yield logic, illustrated

Picture a platform with more than $50 million of EBITDA looking at two add-ons. The figures are illustrative, not from any company.

• Service add-on: $2.5 million of EBITDA at 10x is a $25 million price. With 80% cash conversion, it produces $2.0 million of free cash flow, an 8.0% yield.
• Construction add-on: $2.5 million of EBITDA at 5x is a $12.5 million price. With 40% cash conversion, it produces $1.0 million of free cash flow, also an 8.0% yield.

The yield is the same. Half the multiple fully reflects the riskier, lumpier cash flow that comes with construction work, so the lower price is the market pricing that risk correctly.

Residential: service vs. new construction

Here is how residential service and replacement platforms have traded recently:

• A1 Garage Door Service: about 20x EBITDA in KKR's reported acquisition (our coverage).
• Apex Service Partners: about 18x–19x, based on Apollo's minority investment at a $10 billion valuation against "over" $500 million of EBITDA (our coverage).
• Champions Group: about 18.5x in Blackstone's deal (our coverage).
• Redwood Services: about 17x in Altas Partners' 2025 investment (our comps).
• Sila Services: about 17x in Goldman Sachs Alternatives' investment (our comps).
• Guild Garage Group: about 16x, on a reported value of more than $800 million and close to $50 million of EBITDA (our coverage).

Compare that with the public homebuilders, the purest residential new-construction businesses there are. On forward EV/EBITDA (enterprise value over the next 12 months of consensus EBITDA), D.R. Horton, PulteGroup, Toll Brothers and Lennar trade at roughly 8x–11x. Their five-year average forward multiples run lower still, roughly 6x–8x.

The homebuilders are some of the largest, best-capitalized, most liquid companies in housing. They still trade at well under the multiple private buyers pay for residential service platforms a fraction of their size. Inside a single trades company, the effect is the same: USA Hometown Experts was reported to be selling at a "low double-digit" multiple on roughly $35 million of EBITDA, with sources saying its commercial construction work weighed on the price.

Commercial and industrial: service vs. construction

The same gap shows up in commercial and industrial HVAC, plumbing, electrical and fire protection. Disclosed prices for construction-weighted contractors:

• Limbach / 1901 Inc.: $63 million for a Wisconsin union MEP contractor, about 5.7x expected 2027 adjusted EBITDA (our coverage).
• MasTec / The Superior Group: about $1.65 billion for a data center–focused electrical contractor, about 6.9x projected 2026 adjusted EBITDA (our coverage).
• EMCOR / Miller Electric: $865 million, about 10.8x expected 2024 adjusted EBITDA for a Southeast commercial electrical contractor with strong data center, manufacturing and healthcare exposure (our coverage).

On the service side, the clearest public reference is APi Group, whose business is now majority inspection, service and monitoring: 54% of its 2025 revenue, up from 40% in 2021. It trades at about 17x forward EBITDA.

Limbach shows the strategy from the inside. The company has spent several years shifting toward owner-direct work: maintenance, service and projects sold directly to building owners. That work reached 75.1% of 2025 revenue, and organic general-contractor revenue fell 23% "as the Company continued its strategic focus" on owner-direct work.

One caveat. Public markets are currently paying high multiples for some large construction contractors with data center backlog: Comfort Systems trades at about 18x and EMCOR at about 12x forward EBITDA. Those are scaled, diversified public companies riding a specific end market. For a privately held contractor of $5 million to $100 million in revenue, the private deal prints above are the better guide, and they still favor service.

What this means for owners

Know your mix before a buyer does. Whether you run an HVAC, plumbing, electrical, roofing or garage door company, be able to show revenue and gross margin by service, replacement, maintenance agreements and construction for at least the last three years, along with agreement counts, renewal rates and your top customers.

If you are two to three years from a sale and carry a meaningful construction book inside a service business, you have choices. You can grow agreements and replacement work, prune low-margin builder and GC accounts, or separate the construction division so each part can go to the buyers who value it. As we wrote in our pick-a-lane piece, most residential PE buyers stop bidding once commercial work passes about 20% of revenue.

Construction businesses can sell well too. Commercial, industrial and civil and site buyers pay for backlog, crews, permits and fleet. The goal is to match the business to the buyer that underwrites it.