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Home Services M&A Glossary
Updated April 2026 · CT Acquisitions
A comprehensive reference for M&A, valuation, deal structure, and operational terminology used in home services lower-middle-market transactions. 65 terms defined, cross-referenced, and updated for 2026 market conditions.
How CT Acquisitions Works
- $0 to sellers. The buyer in our network pays us at close. No retainer, no listing fee, no success fee, no commission — ever.
- No exclusivity contract. Walk at any time. If our buyer isn’t paying enough, hire a banker the next day. We have zero claim on you.
- No auction, no leaks. We introduce you to one or two pre-mandated buyers sequentially. Your business never gets shopped.
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- 60–120 days, not 9–12 months. We already know our buyers’ mandates before we pick up the phone with you.
0-9
336(e) Election
Similar to 338(h)(10) but available to C-corps in specific structures. Produces equivalent tax treatment.
338(h)(10) Election
An IRS election that lets an S-corp stock purchase be treated as an asset purchase for tax purposes. Gives the buyer step-up in basis (depreciation of purchase price) while maintaining stock-sale tax treatment for the seller on goodwill.
A
Add-on (Bolt-on) Acquisition
A smaller acquisition made by a PE platform to expand geography, service line, or capability. Typically $500K–$3M EBITDA. Transacts at slightly lower multiples than platform acquisitions.
Asset Sale
Transaction structure where the buyer acquires specified assets and liabilities rather than equity. Preferred by buyers (step-up in basis); typically less favorable for sellers on tax.
B
Breakup Fee
Payment required if a seller terminates a signed LOI during exclusivity (or vice-versa). Not common in lower-middle-market; more typical in larger PE deals.
C
Capital Expenditures (CapEx)
Investment in long-lived assets (trucks, equipment, buildings). A “capex schedule” is standard diligence. Deferred capex is a latent liability buyers price in.
Churn
The rate at which customers leave. Monthly gross churn of 1% (annualized ~12%) is typical for quality pest control. Above 2% monthly, the business is treated as project-like rather than subscription-like.
Confidential Information Memorandum (CIM)
Marketing document used in a sale process. Typically 25–60 pages, describing the business, market, financial performance, and investment thesis. Prepared by the seller’s advisor and delivered to NDA-qualified buyers.
Consolidation
The broader market trend of fragmented operators being combined into fewer, larger platforms. PE-driven in most home services categories.
CT Acquisitions
Lower-middle-market M&A advisory firm specializing in home services. 40+ capital partner network. Paid by the buyer at close; sellers pay no fees. Schedule a consultation.
Customer Concentration
Percentage of revenue from a single customer or small group of customers. Top customer above 15–20% of revenue is a valuation risk that buyers discount. Above 25% often triggers deal re-pricing.
Customer Retention Rate
Percentage of customers retained over a time period (usually annualized). A 90% retention rate means 90% of customers at the start of the period are still customers 12 months later. The single most important quality metric for recurring-revenue businesses.
D
Definitive Agreement
The binding purchase agreement signed after due diligence is complete. Contains all final terms, representations and warranties, indemnification provisions, and closing conditions.
Depreciation Recapture
Portion of gain on sale of depreciated assets (trucks, equipment, fixtures) taxed at ordinary income rates rather than capital gains rates.
E
Earnout
A contingent payment from buyer to seller, typically paid 12–36 months post-close based on performance metrics (revenue retention, customer retention, EBITDA). Common in home services deals, usually 15–25% of total purchase price.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. The standard cash-flow proxy used in lower-middle-market M&A. Valuations are typically expressed as a multiple of trailing twelve months (TTM) normalized EBITDA.
EMR (Experience Modification Rate)
Workers’ compensation rating factor. An EMR of 1.0 is average; below 1.0 is better than average (lower claims, lower premium). Below 0.9 is valued positively by buyers; above 1.3 is a red flag.
EPA Section 608
Federal certification required for technicians handling refrigerants in HVAC/R systems. All technicians should be current on Section 608 for compliance. Gaps are a diligence concern.
Escrow
A portion of purchase price held by a third party against potential indemnification claims. Standard: 10% for 12–18 months. Representations and Warranties Insurance can sometimes reduce or replace escrow.
Exclusivity Period
Period after LOI signing during which the seller commits not to negotiate with other buyers. Typically 45–90 days. Allows the buyer to complete due diligence and negotiate the definitive agreement.
F
Family Office
Investment firm managing a wealthy family’s capital. Longer hold periods than PE (often 10–25 years), more patient with integration, similar pricing to PE platforms.
Flat-Rate Pricing
Pricing model where services are sold at pre-set prices regardless of time spent. Produces 8–12% revenue lift over time-and-material pricing and signals operational maturity to buyers.
Free Cash Flow
Cash generated by operations after capital expenditures. Related to but distinct from EBITDA. Buyers model free cash flow to understand true reinvestment-adjusted returns.
G
Gross Margin
Revenue minus cost of goods sold (including direct labor and material). Different home services categories run different typical gross margins; operators significantly below category norms are often flagged in diligence.
H
Hold Period
The length of time a PE firm owns an investment before exiting. Typical: 3–7 years. Family offices often hold 10–25 years.
HVAC M&A
Merger and acquisition activity in the HVAC industry. See our Private Equity in HVAC: 2026 Industry Report for deep coverage.
I
Independent Sponsor
A buyer who sources deals and assembles capital on a deal-by-deal basis, rather than having a committed fund. Competes with PE platforms on structure and relationship more than on price.
Indication of Interest (IOI)
Non-binding preliminary offer from a buyer, typically submitted after reviewing the CIM. Indicates valuation range, structural notes, and diligence timeline.
Installment Sale
Tax treatment that spreads seller gain recognition over the payment period rather than recognizing all at close. Useful for seller-financed portions of the deal.
L
Letter of Intent (LOI)
Non-binding agreement between buyer and seller outlining the deal structure, price, and timeline before due diligence begins. Signing an LOI typically triggers an exclusivity period (45–90 days).
Long-Term Capital Gains
Federal tax rate on gains from assets held more than 12 months. Currently 20% (for high earners) plus the 3.8% Net Investment Income Tax. State taxes vary.
M
Maintenance Contract
Multi-year commercial contract for recurring service (landscape grounds maintenance, commercial HVAC service, commercial pest control). Generates subscription-like revenue with annual escalators typical.
Management Buyout (MBO)
Acquisition of a business by its existing management team, often with private-credit financing. Preserves team and culture; typically priced below competitive market because of limited capital access.
Master Plumber
Highest licensing tier in the plumbing trade. Required as business license-holder in most states. License coverage transition is a critical pre-sale planning item for plumbing businesses.
Mezzanine Financing
Subordinated debt (often with warrants) used to bridge senior debt and equity. Rates typically 10–14%. Common in $5M+ EBITDA platform deals.
Multiple
The ratio of purchase price to normalized EBITDA (or SDE). A “6x multiple” on $1M EBITDA implies a $6M purchase price. Home services multiples in 2026 range from 3x for weak operators to 10x+ for platform-grade businesses.
N
NDA Breach
When a party receiving confidential information improperly discloses or uses it. Standard NDAs include remedies. Rare in professional M&A processes.
Net Investment Income Tax (NIIT)
3.8% federal tax on investment income above threshold amounts. Applies to capital gains on business sales for most high-earning sellers.
Non-Disclosure Agreement (NDA)
Confidentiality agreement signed by potential buyers before receiving the CIM. Protects seller’s confidential information.
Normalized EBITDA
Reported EBITDA adjusted for owner compensation above market rate, related-party transactions, personal expenses run through the business, and non-recurring items. Most founder-led home services businesses show 5–15% adjustment.
P
Platform Acquisition
The first major acquisition by a PE firm in a category, becoming the “anchor” for subsequent add-on acquisitions. Typically $3M+ EBITDA, with management team and operational systems that can scale.
Private Equity (PE)
Institutional investors who acquire companies using fund capital (limited partner money) and debt, with the goal of improving operations and exiting at a higher valuation. Dominant buyer type in 2026 home services M&A.
Q
QSBS (Qualified Small Business Stock)
Section 1202 of the Internal Revenue Code. Allows up to $10M (or 10x basis) in capital gain to be tax-free if specific requirements are met. Available to C-corps; S-corps can sometimes restructure pre-sale to access.
Quality of Earnings (QofE)
Accountant-led analysis of a seller’s reported earnings to identify adjustments a buyer should make. Standard buyer-side diligence on any transaction above $1M EBITDA. Surprises in QofE often lead to post-LOI retrades.
R
Recapitalization
Sale of a majority stake (typically 60–80%) while the founder retains minority ownership and often a continuing leadership role. Common in PE deals where the founder wants a “second bite” at a future exit.
Recurring Revenue
Revenue from customers who will pay again without a new sales motion — monthly pest control contracts, HVAC service agreements, commercial maintenance contracts. Buyers pay premium multiples for recurring revenue because future cash flow is predictable.
Renewal Rate
Percentage of customers on a service agreement who renew for another term. Healthy service agreement books show 85%+ annual renewal. Below 75% suggests pricing or service quality issues.
Representations and Warranties (Reps & Warranties)
Seller’s binding statements in the purchase agreement about the state of the business. Breaches can trigger indemnification claims against escrow. Reps & Warranties Insurance (RWI) can transfer this risk to an insurer.
Rollover Equity
A portion of sale proceeds the seller “rolls” into equity in the acquirer (typically a PE platform). Creates a “second bite at the apple” when the platform eventually exits. Typical: 5–15% in platform deals.
Roll-up Strategy
PE strategy of acquiring multiple operators in a fragmented category, combining them under a platform brand, and exiting the combined entity at a higher multiple. Dominant strategy in HVAC, pest control, and landscaping.
Route Density
Concentration of customer stops in a geographic area. Higher route density means more stops per technician per day, which drives gross margin. Buyers pay premium multiples for operators with tight density in target metros.
S
SBA 7(a) Loan
U.S. Small Business Administration loan program commonly used by independent buyers and search funders for acquisitions up to $5M. Rates typically prime plus 2.0–2.75%, 10-year amortization.
SDE (Seller’s Discretionary Earnings)
EBITDA plus add-backs for owner compensation and owner-related expenses. Used primarily for owner-operated businesses below roughly $500K in earnings, where the owner’s personal return is embedded in the cash flow. Above $1M in EBITDA, most buyers work off normalized EBITDA directly.
Search Fund
An individual operator backed by institutional investors, searching for a single business to acquire and run as CEO. Typical target: $500K–$2M SDE. Lower multiples than PE but operationally committed.
Seller Note
A promissory note from buyer to seller, subordinated to senior debt. Used to bridge price gaps. Typical: 0–10% of purchase price, 5–7 year term, 6–9% interest.
Senior Debt
The most senior tier of acquisition financing, first claim on cash flow and collateral. Commercial bank acquisition loans are typical; rates are lower than mezzanine or subordinated debt.
Service Agreement
Annual or multi-year contract in which a customer prepays (or commits to pay) for scheduled maintenance, plus typically discounted repair rates. In HVAC, strong operators generate 35–50% of revenue from service agreements and their associated repair work.
ServiceTitan
Industry-standard field service management platform used by many premium home services operators. Presence of ServiceTitan with clean historical data is a positive signal in M&A diligence.
Stock Sale
Transaction structure where the buyer acquires the seller’s equity (stock in a C-corp or S-corp, membership interests in an LLC). Preferred by sellers (cleaner tax treatment of goodwill).
Strategic Acquirer
An existing operator in the same industry acquiring a target to expand geography, add capability, or achieve scale. Often willing to pay premium multiples for geographic or strategic fit.
Synergy
Value created by combining two businesses (shared services, procurement savings, cross-selling, operational improvements). PE platforms typically target 15–20% EBITDA uplift from synergies over 24–36 months.
T
TTM (Trailing Twelve Months)
The 12-month period ending at the most recent month. Standard reference period for valuation: buyers typically base multiples on TTM normalized EBITDA.
U
Unitranche
A single debt facility combining senior and mezzanine in one instrument. Simpler structure; often used for middle-market acquisitions.
W
Working Capital Adjustment
Adjustment at close to ensure the business is delivered with a normal level of working capital (receivables, inventory, payables). Prevents sellers from over-distributing cash pre-close or under-delivering inventory.
Want a specific valuation?
CT Acquisitions offers confidential valuations for home services founders considering a sale in the next 6–36 months. We’re paid by the buyer at close; sellers pay nothing. Book a 30-minute consultation.
