Comfort Systems USA

Blowing hot and cold┬áBill Murdy explains to Gay Sutton how Comfort Systems, already the largest commercial HVAC company in the US, is expanding and moving into new markets. When the going gets toughÔÇöand thereÔÇÖs no denying the economic climate is very tough at the momentÔÇöit helps to be in a business that is essential to modern-day living, and that is exactly what Comfort SystemsÔÇÖ business is.   ÔÇ£WeÔÇÖre not building anything anymore that isnÔÇÖt heated, ventilated and air-conditioned,ÔÇØ says chairman and CEO Bill Murdy. ÔÇ£Those installations will then need to be maintained and serviced and ultimately will wear out; thus the cycle begins again.ÔÇØComfort Systems designs, installs and maintains heating, ventilation and air-conditioning (HVAC) systems for the commercial, industrial and institutional sectors, and it began life just 12 years ago as a consolidation of 12 private mechanical and services companies. Today it has a strong and stable business, with revenues in excess of $1.3 billion, and comprises 46 operating companies that employ around 7,000 people across the United States. ÔÇ£WeÔÇÖre spread right across the US, from Seattle to Orlando, Florida, and from Portland, Maine, to San Diego,ÔÇØ Murdy explains. ÔÇ£But thereÔÇÖs an awful lot of space in between. And though weÔÇÖre the largest single entity in the sector, weÔÇÖre only 3 percent of the total US business, so that gives us plenty of room for organic growth or to enter new markets by acquisition.ÔÇØ Part of this organic growth is in helping customers reduce their energy consumption. ÔÇ£Energy prices have gone up and are coming down again, but I donÔÇÖt think theyÔÇÖre going to come down very far,ÔÇØ he says. ÔÇ£In a commercial building of any kind, 30 to 50 percent of the electric load is devoted to HVAC. We can make that HVAC plant more effective and efficient and save power, and that has a substantial payoff for the building,ÔÇØ Murdy explains.The company is heavily involved in green projects, either designing and installing the latest and most energy-efficient systems in a new build, or providing detailed energy audits of existing installations and then recommending what can be done to decrease energy consumption. The solutions are varied. ÔÇ£There is no one silver bullet. Some of it involves installing the best of the newly designed equipment,ÔÇØ Murdy explains. ÔÇ£Some of it is designing the system correctly. And some of it is controlling it properly: in other words, putting in automated building controls that regulate the temperature and usage of the air handling in the building. ItÔÇÖs a combination of many things that makes HVAC in a commercial setting very effective.ÔÇØThe final part in the energy-saving equation is providing a maintenance service for installed equipment, and this is an area of the business that is also likely to grow considerably. People are only just becoming aware that proper maintenance and service saves energy and produces continuous air comfort and quality.This position of strength, stability and ambition has been reached in spite of a rather rocky start. Rapid growth took place between 1996 and 2000, during which time the company expanded by acquisition from 12 companies to 112, generating up to $1.6 billion in revenues. But the company was plagued by profitability and cash flow problems, and when Murdy joined in 2000, it had a very large bank debt. ÔÇ£The company clearly had not consolidated the 112 companies in any real way, nor exploited any of the synergies that could be garnered,ÔÇØ he says. MurdyÔÇÖs first task was to pay down the debt, and when progress began to slow, the company decided to take on a long-term loan to pay off the remaining short-term debt. ÔÇ£But that literally collapsed on us with 9/11. So we decided instead to rationalize the company. We sold our union operations to the EMCOR Group, downsized the company considerably to a little under $800 million revenue, and then proceeded to build it back, largely by organic growth.ÔÇØ The company has put these experiences to good use. Improvements were made to the groupÔÇÖs productivity and to its capability for cooperation between elements of the company. There is still a fair degree of independence for each of the constituent companies. Many have retained their original names. Hess Mechanical Corporation, for example, services Maryland, Virginia and Washington DC. Others, meanwhile, have chosen to take on the Comfort Systems name, such as Comfort Systems of Ohio. ÔÇ£They all operate in their own markets and make their own decisions, with guidance, about the jobs they take and how they pursue their business. However, itÔÇÖs all tied together very tightly by accounting and reporting control systems that allow us to report accurately as a public company.ÔÇØ The headquarters group provides the administrative backbone for the entire business, providing the companies with healthcare, benefits and administration, legal, procurement, education and training. ÔÇ£ItÔÇÖs a very good mix of central provision of resources and local autonomy that has worked for us, and we intend to keep that.ÔÇØ Continuous improvement is also playing a strong part across all the companies. ÔÇ£Unless an organization like ours is continuously improving, itÔÇÖs continuously failing,ÔÇØ Murdy says. ÔÇ£Some improvement is done through education and training, getting people into the right positions and keeping them there, motivating them to continuously move in the same direction toward the same goals.ÔÇØ The changes have paid off. Comfort Systems now has a very substantial $100 million of cash on the balance sheet, and the slowdown doesnÔÇÖt seem to have had much impact so far. ÔÇ£We have a lot of work going on at the moment: 4,500 projects all over the country, while our backlog is at new record levels,ÔÇØ says Murdy. ÔÇ£As we go forward and grow the company,ÔÇØ Murdy says, ÔÇ£we want to find new geographical areas rather than expand in existing areas. WeÔÇÖre looking to acquire profitable full-service mechanical contractors engaged in new construction, retrofit and services, with a minimum of $20 million of revenues, and in geographies weÔÇÖre not currently represented.┬á Finding the right business for the Comfort Group is much more than that, though. ÔÇ£WeÔÇÖre looking for quality of operations, leadership is very importantÔÇöitÔÇÖs a people business at the end of dayÔÇöand honesty and integrity. WeÔÇÖre very intense about that.ÔÇØ┬á