After nearly a decade of M&A-led growth under owner Brookfield Infrastructure, residential HVAC provider Service Experts is leaning into a franchise growth model, said Nick Ridgway, the company’s vice president of franchise development.

Brookfield acquired Enercare in August 2018 in a CAD 4.3bn transaction. Subsequently, the company retained the Enercare brand in Canada, and Service Experts for its subsidiary in the US. The separation into two units was completed a couple of years ago, according to Daniel Botero, senior vice president of Brookfield Infrastructure Group.

Service Experts pursued an active acquisition strategy prior to the separation. “We reached a point where we obtained decent scale as one of the top five HVAC (players) in the market,” Botero said.

After developing an operations playbook, systems and tools so that the business reached maturity, Brookfield determined that M&A was not the only approach to keep growing the business, Botero added. “We decided franchising was a really attractive growth avenue going forward. We will still consider M&A, but it is not our core strategy for growth.”

Going forward, Service Experts will primarily rely on franchising to enter new markets, Botero said. “It is not only capital efficient, but the incentives are aligned with local operators. We partner on a long-term basis,” he said. This is consistent with Brookfield infrastructure’s own long-term strategy.

Botero acknowledged that Brookfield was starting to see increased competition for HVAC businesses it was looking to acquire, but “market conditions were not the main consideration,” for the shift to a franchise strategy. “Operating and brand readiness drove the decision.”

Service Experts has nearly USD 1bn in revenue, Ridgway said. Much of the growth for corporate-owned locations was through M&A, he said, resulting in 75-plus locations. “We’re still running the corporate businesses, but we wanted to scale beyond acquiring corporate owned HVAC residential services businesses,” he said.

Since launching the franchise model, the company has added five franchisees and 16 territories. Another four are signing on, Ridgway said. Service Experts expects to have about 15 franchisees by year-end across about 30 territories.

Service Experts has a presence in 31 states, representing about 50% of the US market, and wants to have a national presence under one brand.

In addition to expanding to new states, it wants to go deeper in existing geographies, Ridgway said. Currently, the company is strong in the Southeast and Texas. It wants to become larger in the Northeast between Maine and New York; the upper Midwest including Minnesota and Detroit; as well as California, Nevada, Seattle and Portland, Oregon.

Other players in residential HVAC with franchise models include Neighborly (backed by KKR) and Authority Brands (Apax Partners and BCIM). Authority announced a USD 461m whole business securitization this year. Corporate-owned HVAC providers include Apex Service Partners (Alpine and Apollo) and ARS (GI Partners and Charlesbank Capital), Ridgway said. Botero added Wrench Group (Leonard Green & Partners), TurnPoint (OMERS), and Champions Group (Blackstone) to the list.

The big differentiator for Service Experts is that it provides leasing for new HVAC equipment and water heaters, both executives said. “Over 50% of installs today go through our Advantage program,” Ridgway said, referring to the leasing option. It provides recurring subscription-based revenue, he added.

The company’s goal is to have more than 30 sites by the middle of 2027, adding about 20 franchisees per year, he said. The franchise approach generates royalty revenue, but as the brand grows, it will accelerate customer acquisition on the corporate side, Ridgway said.

Botero said Brookfield Infrastructure funds typically have a 10–12 year life. “It’s probably early to tell the ultimate exit strategy but all options are open. We still have room to grow on the revenue side. There are a handful of players of large size.”

I-Franchise Group helped the company devise its franchise strategy, which is now being handled in-house, Botero said. Plave Koch is Brookfield’s law firm.