They sell to contractors. While SaaS founders chase B2C, Watsco built a fortune on B2B distribution.

By buying HVAC distributors. One warehouse at a time. For 70 years.

The model: air conditioners break, furnaces fail, and contractors need parts same-day. You stock the inventory. They buy from you repeatedly. B2B relationships last decades.

1956. Watsco starts as a single HVAC distribution center in Miami selling equipment to local contractors.

Most companies would've stayed regional. Watsco saw that HVAC distribution is massively fragmented: 3,500+ independent distributors, all family-owned and regional, with zero national consolidation. Contractors buy local because same-day delivery is critical.

The economics of one distributor: $15M-$50M in revenue at 22-26% gross margin. Operating costs run 18-20% of revenue, which leaves 4-8% EBITDA. Between 300 and 1,000 contractor customers with a 95%+ repeat purchase rate.

That's a thin-margin business on its own. The entire thesis rests on what consolidation does to those two lines: negotiating power with Carrier, Trane, and Lennox pushes gross margin up 2-3 points, while shared logistics, centralized purchasing, and one technology platform pull operating costs down a point or two. Move gross margin from 23% to 26% and opex from 19% to 18%, and EBITDA margin doubles from 4% to 8%.

In a business doing $60M in revenue, that swing is worth more than three million dollars a year.

Here's a representative five-location distributor, with every line shown so you can check the work.

What you buy:

How you structure it: $3,360,000 down (20%), $10,080,000 in bank debt (60%), $3,360,000 in seller financing (20% over five years). Distribution deals carry inventory and receivables that lenders will advance against, which is why the debt portion works.

What changes in 24 months: expanded product lines and cross-selling lift revenue 18% to $70,800,000. Volume purchasing moves gross margin to 26%, or $18,408,000. Shared back office pulls operating costs to 18% of revenue, or $12,744,000.

New EBITDA: $5,664,000 — still 8% of revenue, but 136% more than you started with.

What it's worth: at the 10.5x the platform itself trades at, $5,664,000 of EBITDA supports roughly $59,500,000 in value. Against a $16,800,000 purchase, that's about 3.5x, or $42.7 million of value created.

Note where that return comes from. Buying at 7x and holding at 10.5x is only 1.5x of multiple expansion. The other 2.3x is the EBITDA more than doubling. In distribution, operations create the value. The multiple is a rounding error by comparison.

Phase 1 (1956-1980): organic growth to 12 locations, Florida focus for high AC demand. $80M revenue at 6% margins.

Phase 2 (1980-2000): 85 regional distributors acquired, Southeast expansion, IPO in 1989. $1.2B revenue at 7%.

Phase 3 (2000-2015): 320 distributors acquired for national footprint, additional brands added, e-commerce platform built. $4.8B revenue at 7.5%.

Phase 4 (2015-2026): 225 more locations filling strategic gaps, international expansion into Canada and Latin America. $16B revenue at 8%.

Today: 630+ distribution centers, 75,000+ contractor customers, 100,000+ SKUs carried.

Location: warm climates preferred for AC demand, metros of 200K+ population, 3+ locations in region for route density, 20,000-50,000 sq ft warehouses.

Financials: $10M-$200M revenue, 20%+ gross margin, 4%+ EBITDA improvable to 7%+, 4+ inventory turns annually.

Customers: 300-2,000 active contractor accounts, no customer over 15% of revenue, average relationship 8+ years, strong collection rates.

Price: 6-8x EBITDA depending on size and market position. At typical 4-6% distributor margins that works out to roughly 0.25-0.45x revenue — be careful with revenue multiples in this sector, because a headline like "half a revenue" on a 4% margin business is really 12x EBITDA, and that is not a price worth paying.

Weeks 1-4: meet top 50 contractors personally, guarantee same staff and same service, introduce extended product lines, lock in continued business.

Months 1-3: implement inventory management systems, connect to centralized purchasing, integrate the e-commerce platform, standardize pricing and margins.

Months 3-6: add manufacturers not previously carried, introduce private label products, transfer inventory between locations, reduce dead stock.

Months 6-18: negotiate better manufacturer terms with volume leverage, improve inventory turns, optimize delivery routes, add value-added services like training and financing.

Average improvement in 24 months: revenue per location +15-20%, gross margin +2-3 points, EBITDA margin +2-4 points, inventory turns +1-2x.

There are 1,200+ HVAC distributors in the US. Watsco, Ferguson, and Johnstone own 42%. 58% remain independent, 696 distributors, average owner age 63, with 280+ actively marketed.

Why now: hotter summers drive AC demand, units installed 2000-2010 are failing now, heat pumps are replacing gas furnaces, contractors need reliable suppliers amid a workforce shortage, and 70% of distributors have no exit plan.

Adjacent distribution plays: plumbing distribution, electrical distribution, and industrial MRO supply all follow the same structure — thin margins, deep customer relationships, and value created through purchasing scale rather than multiple arbitrage.

Path 1: Chase high-margin software. Accept small revenue. Hope for traction.

Path 2: Get direct access to distributors for sale. Buy contractor relationships that have held for a decade. Double the EBITDA through purchasing scale. Exit to a strategic buyer.

The warehouses are there. The contractors keep buying. The margins compound on volume. Our average buyer closes their first distributor acquisition in 6-9 months.

On this call, we'll identify HVAC distributors in warm-climate markets, show you owners age 60+ with no succession plan, and map out your path to building a distribution platform.

This isn't for browsers. This is for buyers.

Stop chasing margins. Start owning volume.

Thursday, September 24, 2026

Watsco's average acquisition closing time: 90-120 days, since inventory valuation takes time. They've done 630 deals over 70 years. The warehouses are there. The contractors are loyal. The volume is real. The question is whether you'll take action this week.