Deal of the Year, Turnaround, 2017: American Capital, Service Experts


  • Company: Service Experts Heating and Air Conditioning
  • Legal Adviser: Arnold & Porter (lead M&A and U.S. counsel); Osler (Canadian counsel)
  • Investment Bank: Moelis & Co.


  • 184 pct IRR; 18x multiple
  • Nearly $60 mln EBITDA turnaround
  • Executed multifaceted restructuring plan

In 2013, American Capital Ltd, through its special-situations investment team, carved out a struggling unit of residential HVAC service centers from Lennox International.

At the time, the unit, Service Experts Heating and Air Conditioning, was generating significant operating losses.

American Capital was able to buy the unit with the help of Service Experts’ former president, Scott Boxer. After three years, American Capital sold the company to EnerCare, a Canadian residential and commercial heating and air conditioning-services company, for $340.7 million, reaping a 184 percent internal rate of return and an 18x multiple.

“Service Experts’ management team was able to execute the turnaround extremely efficiently, returning the business to cash-flow break-even within six months post-acquisition,” said Myung Yi, who was managing director of the special-situations investment team. Yi was a member of the deal team along with Anuj Khanna, Yaniv Zief and Michael Raynor.

The deal is a prime example of a turnaround: American Capital acquired a moribund corporate orphan, with Canadian and U.S. operations, and injected new life into the unit, turning it profitable. So how did it happen?

First was the talent. American Capital partnered with Boxer, who led Service Experts from 2003 to 2010. “The success of the Service Experts turnaround was grounded in the strong working relationship that existed between the special situations investment team and Services Experts,” Boxer said.

Another interesting factor: Service Experts was in the unusual position of being a significant customer of Lennox, which was selling it. At acquisition, Service Experts was generating about $385 million in annual sales.

Once the acquisition closed, American Capital embarked on a multifaceted restructuring. The plan included shifting service-center branding to local “legacy” brand names rather than the national Service Experts brand; restoring 100 percent commission sales; driving accountability back to the individual service centers; and selling unprofitable service centers.

Once the revamp was complete, the company focused on growth. This was achieved through changes to employee incentives and accountability, including initiatives aimed to improve P&L accountability, sales incentives, center rebranding and marketing strategy. All contributed to improvement in organic sales.

Service Experts also self-funded four add-ons. The four contributed to additional EBITDA growth.

This growth occurred when the Canadian dollar dropped about 21 percent versus the U.S. dollar. Nonetheless, total revenue grew by about $70 million (excluding branches sold off).

In 2015, Service Experts hired Moelis & Co to run a sales process. Moelis’s targeted process resulted in the company entering a merger agreement with EnerCare for $340.7 million, which closed in May.

During American Capital’s hold period, Service Experts grew 12 percent, to 2,800 employees from 2,500. At exit, Service Experts had about $435 million of annual sales.

“Together, we created a strategic vision for the company and leveraged our respective areas of strength to achieve a significant turnaround of the business,” Boxer said.

“The special-situations investment team’s deep financial, operational and transactional experience, coupled with our talented employee base, strong execution capabilities and deep industry knowledge, revitalized the company into an industry leader.”

(On Jan. 3, 2017, American Capital Ltd. merged into Ares Capital Corp (Nasdaq: ARCC). Subsequent to the merger, the members of the American Capital special- situations investment team who effectuated the Service Experts transaction launched a new firm, CapitalView Investment Partners LP.)

Photo courtesy of Service Experts