ServiceTitan IPO Intends Dominance Amongst All Trades

ServiceTitan, a household name amongst the HVAC-initiated, began trading in December of 2024 on the NASDAQ, raising hundreds of millions of dollars in cash for the company. But what does this mean for you, the contractor? In general, an IPO is a significant step in a company’s life, providing the newly public entity with the additional capital necessary to invest in its capabilities, improve the value to its customers, grow revenue, reach or expand profitability, rinse and repeat. This process is also referred to as a “virtuous flywheel” amongst business school types and consultants. ServiceTitan’s increased ability to invest should be a good thing for its customers as the company is able to rapidly grow its offerings in the way of better data analytics to help customers run their businesses and improve productivity and profitability of techs and customer service centers. In fact, on ServiceTitan’s most recent quarterly earnings call in mid-January, the company commented to Wall Street that analysts and investors should not expect research and development to decline as a percentage of revenues for the foreseeable future. In other words, when sales grow, R&D will increase.

We are by now very familiar with the ongoing consolidation of HVAC contracting companies and in almost all the trades. ServiceTitan is essential to aiding this maturation and professionalization of the trades. Historically, home services have been relatively low-tech, which made scaling service businesses difficult and costly.   To investors, the task of rolling up the trades businesses was tried and failed decades ago, and simply too difficult to succeed in.  As ServiceTitan and other software solutions have grown, its ability to help HVAC and other contractors improve their business’ efficiency has led to greater profitability. This improvement in profitability and technology has predictably attracted the interest of private equity investors.

The natural thought from private equity investors then becomes, “If we can consolidate HVAC contractors, then perhaps we can consolidate other trades”.  The logic seems sound on the surface; however, trades have significant differences between them. Some trades are more complicated than others, exhibiting different workflows and nuances. Time will tell, and we know that ServiceTitan has the capital to invest in creating solutions outside of HVAC. In total, ServiceTitan’s leadership believes that the company’s total addressable market can grow to $30 billion or more, which implies plenty of growth ahead. The existence of any service software, whether a contractor uses it or not, should increase transaction valuations, as the ceiling on profitability and return on invested capital is raised.

Can ServiceTitan Survive Without Private Equity?

Part of ServiceTitan’s pitch to investors is that consolidation in the industry has led to larger contractors who have a greater need for data to effectively run their businesses. As a company grows, it has a reduced ability to maintain a read on the pulse of its customers. Consider an owner-operator on one end of the spectrum that deals directly with his or her customers, knowing each of them on a first-name basis, and a multi-county operator with layers of management and various supporting departments. The latter is much more complex to run, and so data becomes critical to its effective and efficient operation.

In our research, we have found that contractors who sell to private equity achieve a one-two “turn” bonus in the valuation of their business to consolidators, that is to say, that whatever multiple that the business transacts at commands a higher valuation. Part of this is due to a smoother due diligence process, where buyers can better compare apples to apples in their deal math. Another part of this is ease of integration for private equity owners who already are on the ServiceTitan platform.

Can Private Equity Survive Without ServiceTitan?

The short answer, of course, is yes.  That said, it’s clear that data is an increasingly important part of running complex businesses. ServiceTitan and private equity buyers rely on each other to thrive. One thing that attracts private equity to a business is the ability to buy in greater scale and centralize some back-office functions like call centers and scheduling, leading to greater profitability. Another source of return for investors is taking a business and making some slight (or major) changes in order to improve its efficiency and profitability. In fact, some private equity buyers will only look at contractors who are not on ServiceTitan so that they are able to have a well-known playbook that they can execute post-close to achieve their required returns.

The existence of ServiceTitan and its competitors, like Housecall Pro and Jobber improve the efficiency of operating a contracting business, improving the financial potential of every home services business, hopefully more than the additional cost of the software. By increasing the efficiency of the industry and improving its profit potential, the value of the entire industry increases for those contractors looking to sell their businesses. While some deals may have not happened in the past, with the help of home services software companies, more deals make financial sense, and more owners looking to exit are able to sell for top-dollar valuations.

What’s Next?

All in, we expect that ServiceTitan will continue to add to its product offerings for HVAC contractors and expand its product outside of HVAC. Currently, ServiceTitan serves 10 trades. In the past several years, ServiceTitan has expanded into remodeling, landscaping, garage doors, roofing, chimney, pest control, and water treatment along with more commercial construction applications. While HVAC contractor transactions peaked in 2021 and have declined in each calendar year since, we view activity as a function of interest rates, which bottomed in 2021. Given the symbiotic relationship between private equity and ServiceTitan, there’s a high likelihood that where one goes, the other will follow.