Clinching the deal: How two Rochester firms made the merge

Last year, the US saw 14,078 M&A deals in the 12 months ending July 31, one of those being Rochester sister companies Kennedy Mechanical and Ryan Plumbing & Heating who joined the NexCore commercial HVAC platform, backed by private equity entity Trinity Hunt Partners.

Nearly a year after the deal was finalized, we checked in with several of the key parties involved with the deal to find out how it is going and gather some tips for others considering the process.

“Things are going very well, we’re very happy and have no regrets,” said Stephen Cassidy, president, of Kennedy Mechanical. “We were very fortunate to have a partner in the company that bought us that is very decentralized, very supportive and kind of hands-off. They don’t know plumbing and heating, they know private equity, so they respect that and don’t want to get too far in the weeds in our day-to-day operations.”

That is exactly what Cassidy was looking for: a partner who would be true to their word and give the leadership and employees space to do what they do. The process was a learning curve that began after Cassidy began hearing industry buzz about private equity interest in HVAC firms and seeing some action locally.

“Around 2021-ish we started getting our thoughts together and we kind of jumped in with two feet and hired an investment bank that we didn’t get referred to, but I’d heard about,” Cassidy said. “They’re big in our industry as far as doing transactions and they’re a very successful business.”

However, they were not the right fit for Kennedy Mechanical and Ryan Plumbing & Heating, and Cassidy and his partner exited the process before going to market.

“But the good thing about that was we learned a lot,” Cassidy said. “I think most importantly we got to sit back and think about what kind of partner we were looking for.”

After taking some time to reflect and develop the ideal partner, the team re-engaged in 2023 – this time making a conscious choice to keep things local.

They received and followed a personal recommendation from a local businessperson who had been in their shoes, joining forces with an area law firm highly experienced in M&A – Harter, Secrest & Emery LLP – and a local investment banking firm – Paramax Corporation.

With offices in Rochester and Buffalo, Paramax has advised on more than 400 closed transactions for public and privately held companies around the world, generally ranging from $10 million to $1 billion in enterprise value.

”Probably the number one best thing we did was get a top-notch team,” Cassidy said. “It was a slam dunk – an investment banker, an attorney, and an accounting firm that we’ve been working with for thirty years. They made everything easier.”

Among the members of that winning team were Tom Anderson, a partner and head of the mergers and acquisitions practice at Harter Secrest & Emery; Russell D’Alba, CPA, the founder, president, and managing director of Paramax Corporation and Joseph Donovan, senior vice president of Paramax.

“Joe was kind of the point person who kept things moving,” Cassidy said. “That’s why you need a good investment banker because they’re the quarterback and keep everybody communicating, everybody answering questions.”

Among the first things Donovan and the Paramax team did was a market-based valuation – something the initial investment bank in 2021 did not offer and would be, Anderson noted, akin to listing your home without knowing what it was worth.

”One of the best things that an investment bank can do is level setting expectations of a seller,” Anderson said. “So often I see founders or sellers coming in with an expectation that their business is worth X plus when in fact it’s worth X or X minus. Paramax does a great job of setting expectations, which actually allows for the process to smoothly move forward because everybody understands what the baseline is.”

Before going to market, the Paramax team set the stage for the due diligence part of the process – often considered the most challenging for clients (including Cassidy) – by putting them through a due diligence fire drill. This entailed collecting important data and making entries into a virtual data room with the goal of asking for a certain set of data or information once from a client.

“Steve’s got a business to run,” D’Alba said. “It could take nine to twelve months to get a deal done and for those nine to twelve months, he can’t take his foot off the gas pedal. He’s running a business, and we want to try to minimize the number of disruptions to the ongoing business.”

Cassidy knew quickly that the ultimate buyer was the right buyer among the 80 originally presented by Paramax. He was drawn to their ‘do no harm’ philosophy, which they promote as continuing a company’s brand, culture, and organization even after purchase.

He also found it very helpful that the Paramax team brought the out-of-state buyer to Rochester several times, including for an introductory, face-to-face dinner.

“We made them come to us and visit with us in our town with Steve in his town,” Donovan said. “They’re a big city buyer, sure, and a big well-capitalized firm, but they came to Steve and spent a lot of time with him. They made the effort.”

Due to the foundational health of Kennedy Mechanical and Ryan Plumbing & Heating, the hard work all parties put into the process, and excellent communication among all, the deal only took eight months from start to finish – which Donovan and D’Alba note is atypically fast.

“The deal would never have closed in eight months if the law firm had decided to grow an ego and pick fights about every little thing,” said D’Alba, adding another reason for the deal’s speed. “Harter Secrest & Emery are client-centric, client-oriented and they know what the goal is. They’ll protect the client from all the big issues and even some of the smaller ones, but without derailing the process or harming the relationships.”

Cassidy’s biggest takeaways from the M&A process: it’s important to get referrals from people who have been through it; assemble the best legal, investment banking, and accounting team possible; and listen to their expertise, while also listening to your gut.

“ It’s tough, but it’s exciting and it’s exhilarating,” Cassidy said. “It’s a major event and I go back to the idea that if you hire the right team – a great team – and pay them very well, they’re worth every penny.”

Caurie Putnam is a Rochester-area freelance writer.