Geography-First Acquisition Filter
Score market geography before evaluating any business-specific metrics in a service acquisition
Before evaluating EBITDA, RMR percentage, or management quality, determine whether the geographic market can support the revenue ceiling required to justify the multiple. The thesis differs by business type: HVAC and plumbing can generate $30M in a town of 30,000 people because every household has a furnace, but commercial security requires businesses to exist and grow in order to generate new commercial accounts. Security roll-up thesis in a declining-population Rust Belt market is structurally weaker than the same thesis in a high-growth Sun Belt triangle. The filter does not reject small markets categorically, but it forces explicit modeling of the ceiling before the buyer falls in love with the numbers.
- Market ceiling is a function of geography and business type, not just operator quality.
- Commercial security requires business density and business formation; residential HVAC requires only housing density.
- High-growth Sun Belt markets provide both a larger installed base and a continuous new-construction pipeline.
- A geographically capped business can be well-run and still hit its ceiling before the buyer recoups the multiple.
- Geography filter should be applied before financial diligence, not after.
- Define the addressable market by business typeFor HVAC and plumbing, the addressable market is essentially every building with a furnace, pipe, or drain. For commercial security, it is every commercial property with a viable security budget. These are fundamentally different sized pools in the same geographic area.Pro tipUse county-level business formation data (IRS or Census Business Formation Statistics) as a proxy for commercial security account growth potential.
- Model the revenue ceiling at realistic penetrationEstimate total addressable accounts in the service area, apply an achievable penetration rate (typically 5-15% for a local operator without dominant brand), and price at average revenue per account. If the ceiling revenue does not clear the acquisition multiple in a reasonable hold period, the geography fails the filter.WarningDo not use the seller's current penetration rate as the ceiling. Ask what penetration looks like for the best operator in the market.
- Assess growth trajectory, not just current sizeA market at 30,000 people with flat or declining population is structurally different from a market at 30,000 people growing toward 50,000. The acquisition multiple is forward-looking; the geography filter should be too.Pro tipFor commercial security specifically, look at permitted commercial construction and renovation starts in the county. This is a leading indicator of new account pipeline.
- Apply the filter before financial diligence, not afterRun the geography filter as a pre-screen before investing time in financial due diligence. If the geography cannot support the thesis at target penetration, no amount of operator quality or clean financials changes the ceiling constraint.Pro tipThe Entry and Exit hosts applied this filter explicitly when narrowing to the Texas triangle. Their bias is not arbitrary: Sun Belt business formation rates and population growth provide a structural tailwind that a Rust Belt market with the same current revenue cannot replicate.
John Wilson described a real operator running a $30M plumbing, HVAC, and electrical business in a Western New York town of roughly 30,000 people. This appears counterintuitive until you apply the geography filter correctly: HVAC and plumbing demand is driven by housing units, not business formation or population growth. Every home is a potential account. The ceiling is high relative to population because the service is non-discretionary.
The Entry and Exit hosts explicitly built their acquisition and organic growth thesis around the Texas triangle (Houston, Dallas, Austin) based on population growth, business formation rates, and commercial construction activity. They described this market selection as foundational to their strategy, not incidental. The same business model deployed in a stagnant market would hit a ceiling that limits the roll-up thesis regardless of operator quality.
Extracted from Owned and Operated (HVAC vs Security episode). John Wilson contrasted a $30M plumbing and HVAC business in a town of 30,000 near Buffalo with the Entry and Exit hosts' explicit Texas triangle thesis, surfacing geography as a pre-filter that applies differently across trade types.