How Cody Bought A $2.66M HVAC Company

Cody is an acquisition entrepreneur. He found a real, cash-flowing Texas HVAC business doing installation, service and maintenance work. The boring kind that quietly builds fortunes.

Boring matters because a lender is not buying your vision, it is underwriting the odds that cash keeps arriving after the seller leaves. Service businesses of this kind score well on exactly the things a credit committee tests:

• Service agreements. Recurring maintenance contracts are contracted revenue, not hoped-for revenue. This company had a deep service-agreement footprint, which is close to the most bankable trait a trades business can carry.
• A diversified customer base. Residential and commercial both, with no single customer whose departure ends the company. Concentration is what makes an underwriter flinch.
• A tenured operating team. The people doing the work were already there and stayed. That answers the question every lender is really asking, which is whether this is a business or just the seller with a truck.
• Non-discretionary demand. Air conditioning in Texas is not a lifestyle purchase. Equipment fails on a schedule that no recession consults.

Before you fall in love with a target, ask the underwriter's question first: if the seller walked out tomorrow, what percentage of next year's revenue is already contracted?

Here is where most buyers stop. Cody did not have $2.66 million in cash. Almost nobody does. Finding the business is the easy part. Raising and structuring the capital to buy it, legally and safely, is the wall.

The mistake underneath the wall is a category error. First-time buyers assume the requirement is the purchase price. The actual requirement is different and much smaller: a lender who believes the cash flow, a seller who will wait for part of the money, and enough of your own capital at risk that both of them believe you.

You are not raising $2.66 million. You are assembling three parties who each take a different slice of the same cash flow, in a fixed order of priority.

So Cody came to Raises.com. Tre Brown, our Head of Capital Markets, worked the engagement end to end: he negotiated and structured an equity-light transaction, sourced the senior lender, and architected the seller-financing instrument that ultimately enabled the closing. Here is what got built.

1. The senior secured facility

The largest layer, and the cheapest money in the deal, because it sits first in line for repayment and is secured against the assets. Here it came from US Strategic Capital Advisors, with Candler Cook, a Senior Vice President there, leading the credit facility from initial diligence through closing.

Buyers in the lower middle market usually choose between two roads. Government-guaranteed lending (SBA 7(a) in the United States) is cheaper and highly standardised, but it caps out, moves at its own pace, requires a personal guarantee, and demands an equity injection on a change of ownership. Private or institutional credit, the road this deal took, costs more and comes with covenants, but it will structure around a situation, move on a real timeline, and negotiate. Confirm current programme terms with your own lender before you model anything, because these rules get revised.

2. The seller paper

The seller agreed to be paid part of the price over time, through a structured seller-financing instrument subordinated to the senior facility. This is the layer that makes equity-light deals possible at all, and the next chapter is entirely about it.

3. The sponsor equity

The thin slice. Minimal sponsor cash equity at closing, which is what equity-light means in practice. Note the word minimal rather than zero. Lenders and sellers both read your contribution as a statement about your conviction, and a buyer with nothing at risk is a buyer who can walk away in month four.

4. The optionality feature

The piece most buyers never think to offer. The structure gave the selling founder a contractually defined right to re-enter the post-closing capitalisation at his election. He is not merely a creditor waiting for cheques, he holds a door back into the equity of the thing he built.

Every equity-light acquisition turns on one question: why would a seller accept part of their money later, when a cash buyer might hand it all over on Friday?

Start with the two terms that get confused constantly, because they are different things and lenders care enormously about the difference:

• Subordination is about priority. If things go wrong, the senior lender is repaid before the seller sees anything.
• Standby is about timing. The seller receives no payments at all for a defined period, even when things are going fine. Lenders often require a standby precisely so early cash flow services the senior facility rather than the seller.

Why a rational seller says yes

• They get their number. A seller who will not move on price will frequently move on terms. Carrying paper is often how a buyer bridges a valuation gap without overpaying in cash.
• Tax treatment. Receiving proceeds across several years can change what the seller actually keeps, versus one taxable lump. Their accountant runs that math, not you.
• Continued upside. This is what the re-entry right did in Cody's deal. The founder kept a defined path back into the equity column, so the platform's future was worth something to him.
• They believe in the buyer. Sellers of family businesses care who takes over. Preserving operational continuity and retaining key personnel, both of which this structure was designed to do, is a real term to a real seller.

What to actually negotiate in the note

• Term and amortisation. How long, and whether it amortises or balloons.
• Interest rate, and whether interest accrues during any standby period.
• The standby period itself, which the senior lender will usually dictate.
• Security. Whether the note is secured by anything, and behind whom.
• Acceleration and default. What the seller may do if you miss a payment, and how long you have to cure.
• Offset rights. Whether you may deduct against the note if the seller representations turn out to be wrong.

Offset rights are the most underrated clause in the document. It is your practical remedy when something you were told turns out to be untrue after closing.

A term sheet is not money. Between the two sits diligence, and this deal shows how seriously an institutional lender takes it: the transaction was completed following an in-person facility visit by the senior lender's investment team to the company's Texas operations. They flew down and looked at the trucks.

What the underwriting is genuinely probing:

• Owner dependency. How much of the business lives in the seller's head, phone and relationships. This is the leading killer of trades acquisitions, and the reason a tenured team matters so much.
• Quality of earnings. An independent read on whether the profit is real. Expect proposed add-backs to be challenged. Personal expenses run through a family business are common and adjusting for them is legitimate, but every add-back you cannot document reduces what a lender will advance.
• Customer concentration. Revenue by customer, and what contractually happens to those relationships on a change of control.
• Working capital. The item first-time buyers forget entirely. Deals are typically struck cash-free and debt-free against a normalised working capital target, and if the business arrives below that peg you settle the difference at closing. Real money, and negotiated rather than decreed.
• Cash conversion. Whether reported profit turns into bank balance, and how quickly receivables are collected.

Ask for the working capital peg methodology in writing at LOI stage. Arguing about it a week before closing, when everyone is exhausted, is how buyers lose six figures.

Then, days before the wire, a compliance issue surfaced that could have killed the deal. This is where most acquisitions die. Instead, we engineered a bespoke convertible-note structure that solved it, and the deal closed on time.

Late-stage failure is not bad luck, it is a category. In service-business acquisitions the same short list keeps reappearing, and every item on it is findable early if you go looking:

• Licensing. Trade licences are frequently attached to a qualified individual rather than to the company. If that individual is the departing seller, you need to know months ahead who holds the licence the day after closing.
• Change-of-control consents. Customer contracts, service agreements and supplier terms that need the counterparty's permission to transfer.
• Lease assignment. The landlord who must consent, and who suddenly holds leverage over a deal with a date on it.
• Insurance and bonding. Continuity of coverage, and any bonding capacity the work depends on.
• Key people. Whether the technicians and the operations lead are staying, and what they have signed.
• Liens and payoffs. Existing security interests that must be released so your lender can take first position.
• Regulatory and environmental records. In HVAC specifically, refrigerant handling and certification records are a live diligence area.
• Financials that do not survive scrutiny. Where the quality of earnings work lands short of the model everyone has been running on.

The lesson is not that Cody got lucky. When a deal breaks at the last minute the fix is structural, not emotional. Someone has to be able to redesign the instrument at speed, with the lender still on the phone.

Alongside the stack sit the documents. Where a buyer raises outside capital rather than funding the equity slice alone, this is the set that turns an intention into an institution-grade offering:

• The private placement memorandum. The disclosure document. What the opportunity is, how it is structured, who runs it, and everything that could go wrong, stated plainly.
• The subscription agreement. How an investor actually commits, what they represent about their own eligibility, and what they are buying.
• The operating agreement. Governance and economics. Who decides what, who gets paid in what order, and what happens when people disagree.
• The financial model. The proforma showing debt service, covenant headroom and returns under conditions that are not the best case.
• The data room. All of the above plus diligence materials, organised so a lender or investor can satisfy themselves without a scavenger hunt. On this engagement the dataroom and the diligence cycle were run by the deal team directly.

Getting these wrong is not a paperwork problem, it is legal exposure that follows you for years. Securities work belongs with qualified counsel, and nothing in this guide is legal, tax or investment advice.

Cody didn't just buy one HVAC shop. That acquisition is the inaugural platform of an operator-led roll-up targeting profitable, family-operated service businesses across Texas and the broader Gulf Coast, and the platform is actively progressing on additional pipeline opportunities.

This is why the first deal's structure matters more than it looks. A first acquisition that closes clean, keeps its team, keeps its seller on good terms and services its debt is the credential you carry into the next lender conversation and the next seller meeting. A first deal that closes badly is a story you explain for years.

• Write down, for your target, the percentage of next year revenue that is already contracted. If you cannot, that is your first diligence request.
• Ask the seller directly whether they would consider carrying paper, then listen for what they actually want, which is often certainty and legacy rather than maximum cash.
• Find out today who personally holds any trade licence the business operates under.
• Get the working capital peg methodology in writing before you sign an LOI.
• Run the lender conversation in parallel with diligence rather than after it, because the lender dictates the terms of the seller note and you cannot finalise one without the other.
• Decide who is going to redesign your structure at midnight if something surfaces days before the wire. That is a capability. You either have it or you are hoping.