Source Talks ep. 31

Source Talks is a series where we discuss deal origination with expert PE and M&A pros.
In this interview, David Toll of chats with Ashley Kooyenga of McNally Capital on the firm’s value for investing in family-owned businesses and a recent deal in the icy hot HVAC sector.

So, Ashley, please start off telling us a little bit about McNally capital and your investment strategy there.

We’re focused first and foremost on investing in family, founder, and management-owned companies. And we invest across aerospace and defense, industrial products and services, and business services. Size-wise, it’s ranging somewhere between five and $30 million of EBITDA.

Ashley, tell us about a recent deal you completed there and how you sourced it.

I think Smith and Obi, a recent portfolio company that we acquired in March is probably a good case study. It’s a commercial HVAC business, and we last year decided as a firm that we wanted to develop a thesis, poke around and see, does it make sense for us to get involved in the HVAC marketplace? And what we found was, first of all there are a lot of family-founder owned companies in that space. Obviously, there’s a very big consolidation opportunity. So, we went for it, and step one of starting our sourcing campaign – I went to SPS and said, where are all the bankers who have sold a facilities management-related deal? Not to mention, there are a lot of the generalist firms we work with who could have one of these opportunities. But you know, where are the folks who have done this before? And eventually we had a boutique firm called Melcap in Cleveland. They sent us over this family-founder backed commercial HVAC company right in our size range. It checked the profile of a lot of the things that, through our diligence, we had determined we wanted in a platform. And we went for it and sure enough several months later, we came to closing in March of 2022. So that was a great story all-around. I think the team felt very confident in the sector, we were confident in our sourcing strategy and, what do you know? It led to a very nice platform investment that speaks to what a McNally deal looks like.

Ashley, tell us a little bit more about why you do like the HVAC space.

So, commercial HVAC has proven to be very resilient through economic downturns. Including through Covid – though, of course there’s always a slight decline. But for the most part, if your HVAC goes down, it needs to be replaced.

Ashley what type of add-ons do you seek that’s part of your strategy?

We’re in Cleveland, Ohio. We have a second location down in Charlestown, West Virginia. So, we can source and close anything $250 thousand of EBITDA or higher in Cleveland, because that would be a nice little tuck-in. We’re also looking to expand into Columbus because that’s a nice tangential market for us that’s within driving distance.

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