--- title: "How Private Equity Values Plumbing Service Contracts (2026 Math)" description: "The underwriting math behind plumbing multiples: ARR multiples on service agreements, water-heater replacement attach rate, and how Apex, Wrench, and Roto-Rooter model the recurring book." slug: "how-pe-values-plumbing-contracts" canonical: "https://mainstreetwealth.ai/resources/how-pe-values-plumbing-contracts" collection: "resources" collection_name: "M&A Resources & Insights" author: "Sukhrobjon Ismoilov" category: "valuation" date_published: "2026-06-08T14:55:25.542Z" date_modified: "2026-06-08T14:55:25.662Z" token_estimate: 3530 source: "https://mainstreetwealth.ai/resources/how-pe-values-plumbing-contracts.md" --- # How Private Equity Values Plumbing Service Contracts (2026 Math) > The underwriting math behind plumbing multiples: ARR multiples on service agreements, water-heater replacement attach rate, and how Apex, Wrench, and Roto-Rooter model the recurring book. **Author:** Sukhrobjon Ismoilov **Published:** 2026-06-08 **Updated:** 2026-06-08 **Canonical:** https://mainstreetwealth.ai/resources/how-pe-values-plumbing-contracts Plumbing is structurally different from HVAC or pest control. The recurring-revenue mix is lower because most plumbing demand is event-driven (a clog, a leak, a failed water heater). But operators who have built a recurring service-agreement program, a documented water-heater replacement attach rate, and a multifamily property-management book have created an asset that PE-backed buyers (and increasingly the public strategics like [Apex Service Partners](https://www.apollo.com/institutional/insights-news/pressreleases/2026/05/apex-service-partners-and-alpine-investors-announce-strategic-mi)) model with explicit SaaS-style discipline. This page is the underwriting math that explains why. For a full overview of the trade and the buyer landscape, see our [plumbing industry overview](https://mainstreetwealth.ai/industries/plumbing). For closed-deal patterns, see our [recent transactions](https://mainstreetwealth.ai/case-studies/). For headline ranges, see [plumbing EBITDA multiples by deal size](/resources/plumbing-ebitda-multiples). ## The core insight: plumbing revenue is bimodal in a different way A typical mid-sized residential plumbing P&L breaks into multiple revenue streams that buyers value separately: - **Recurring service-agreement revenue.** Annual service-plan agreements (drain inspection, water-quality testing, water-heater maintenance, fixture warranty, sewer-line warranty). Annual retention 70 to 85% in well-run shops. Buyers value this as ARR. - **Captive replacement and re-pipe revenue.** Water heater replacement, fixture replacement, re-piping, sewer-line replacement triggered from existing customer base. Lower CAC than retail-acquired install revenue. Buyers value this as a hybrid: part recurring (because it derives from the recurring customer base), part one-time. - **Retail one-time service revenue.** Drain cleaning, leak repair, fixture replacement for non-customer households. Purely event-driven, no retention. Valued like a job-based service business. - **Multifamily / commercial property-management revenue.** Multi-year master service agreements with multifamily portfolios, commercial property managers, hospitality, healthcare. Recurring at the contract level even though individual service calls are event-driven. - **New-construction revenue (residential or commercial).** Project-based, cyclical, low-margin. Trades like a contractor. Buyers will run a **separate valuation on each stream** and add them together. Two plumbing companies with identical $1M of EBITDA can transact at very different valuations depending on the mix. ## How buyers model the service-agreement book (the SaaS math) For the recurring service-agreement stream, a sophisticated buyer uses the same framework as for a B2B SaaS company. ### Step 1: Convert to ARR - Sum all active service agreements at their current annualized rate. - Adjust for any agreements that are technically active but inactive in fact (no service utilization for 18+ months). - Result: **ARR (Annual Recurring Revenue)**. ### Step 2: Apply a gross-margin filter Plumbing service-agreement gross margins are typically **40 to 55%** depending on labor productivity and parts mix. ### Step 3: Compute customer-acquisition payback - **CAC (Customer Acquisition Cost):** Marketing spend on agreement acquisition divided by new agreements signed - **LTV (Customer Lifetime Value):** ARPU x Gross Margin x (1 / Annual Churn) - **LTV/CAC ratio** and **payback period** are then computed A residential plumbing service-agreement LTV/CAC of 3 to 5x with a payback period under 24 months is investable for institutional capital. ### Step 4: Apply an ARR multiple Top-quartile plumbing service-agreement books trade at **1.5 to 2.5x ARR**. The range is below HVAC (where 2.0 to 3.0x is typical) and well below pest control (2.5 to 4.0x) because plumbing service-agreement retention is structurally lower. The downside, however, is partially offset by the captive replacement / re-pipe revenue described below. When you convert that ARR multiple back to an EBITDA multiple, assuming 45% gross margin and 18% EBITDA margin on the recurring stream, the implied EBITDA multiple on recurring revenue alone is **6 to 10x**. ## The captive replacement / re-pipe lever (the plumbing-specific premium) Where plumbing differs most from HVAC: the **captive replacement attach rate** is a meaningful, separable value driver. This is the percentage of opportunities where an existing customer base generates replacement revenue: - **Water heater replacement attach rate.** A typical residential customer has a water heater every 8 to 12 years. Top operators capture 35%+ of replacement opportunities within their existing customer base. That captured replacement stream has lower CAC than retail-acquired install revenue. - **Re-pipe attach rate.** For shops with active sewer-line and water-line warranty programs, the conversion of warranty inspections to re-pipe sales is a documented operational lever. Top operators run 8 to 15% conversion. - **Fixture replacement.** Service-call to fixture-upgrade conversion (toilets, faucets, garbage disposals) is the smallest line item but compounds with route density. So when buyers value the install / replacement book in plumbing, they apply two layers: - Captive replacement (from existing customers): 4 to 6x EBITDA - Retail-acquired install: 2.5 to 4x EBITDA A blended valuation looks like: ``` Enterprise Value = (Service-agreement ARR x 1.5 to 2.5x) + (Captive replacement EBITDA x 4 to 6x) + (Retail one-time EBITDA x 2.5 to 4x) + (Multifamily / commercial recurring EBITDA x 5 to 8x) + (New-construction EBITDA x 3 to 4x) - Net debt + Excess working capital ``` When the recurring share of revenue and the captive-replacement share are large, the blended multiple is high. When the new-construction share dominates, the blended multiple compresses toward the contractor range. ## What drives the ARR multiple Within the 1.5 to 2.5x ARR range, buyers separate companies on: ### Annual gross revenue churn (the largest driver) - **Under 20% churn** -> top of range (2.2 to 2.5x ARR) - **20 to 30% churn** -> middle (1.8 to 2.2x ARR) - **30%+ churn** -> recurring-revenue valuation breaks down; revert to EBITDA-multiple valuation ### Customer cohort tenure profile A right-skewed cohort (most revenue from older customers) is the strongest indicator of low churn. Buyers will request cohort-by-cohort retention for the past 5 to 7 years. ### Auto-charge percentage Customers on ACH/auto-charge have meaningfully higher retention than customers on invoice-and-check. A book at 90%+ auto-charge sits at the top of the ARR range. ### Contract enforceability Auto-renew clauses, term length, and notice requirements all factor into how buyers model retention. ### Captive replacement attach rate The percentage of service-agreement customers who replace their water heater / fixture through your shop when their equipment ages out. Above 35% is platform-quality and shifts the blended multiple. ### Software and data quality PE buyers want exportable transaction-level data. ServiceTitan, Housecall Pro, and FieldEdge produce diligence-ready exports. Spreadsheet-run shops still transact, but at a 0.25 to 0.5x ARR multiple discount. ## Why strategic buyers pay more than financial buyers Public strategics and well-capitalized PE platforms (Apex Service Partners at the new ~$10B EV per [Apollo's May 2026 announcement](https://www.apollo.com/institutional/insights-news/pressreleases/2026/05/apex-service-partners-and-alpine-investors-announce-strategic-mi); Wrench Group; Sila Services) can pay **1 to 2x EBITDA more** than a financial sponsor for the same business because: - **Synergies are real.** Vendor purchasing leverage (Watts, Rheem, A.O. Smith, Sloan, Ferguson, plumbing-supply distributor relationships), route consolidation, technician redeployment, and back-office consolidation produce 200 to 400 bps of margin uplift on integrated operations. - **Cost of capital is lower.** Apollo-backed Apex underwrites at a lower discount rate than a smaller PE fund. - **Integration risk is lower.** A platform that has integrated 60+ acquisitions in a year (Apex's 2025 pace per [Alpine via PitchBook](https://pitchbook.com/news/articles/alpine-targets-1b-fund-to-invest-in-its-own-businesses)) runs a tighter playbook than a first-time integrator. - **Cross-trade synergy.** Tri-trade platforms (HVAC + plumbing + electrical) can sell additional services to existing single-trade customers, lifting the LTV / CAC math for the combined entity. The full strategic-buyer breakdown is in [Apex, Wrench, Roto-Rooter and the plumbing strategic buyer landscape](/resources/plumbing-strategic-buyer-landscape). ## Public-comp benchmark: Roto-Rooter as the residential service standard Chemed's Roto-Rooter segment (the publicly-traded benchmark for residential plumbing service) reported **$220.6M revenue and $47.5M Adjusted EBITDA in Q4 2025** (a 21.5% EBITDA margin) per [Chemed Q4 2025 results](https://markets.ft.com/data/announce/detail?dockey=1330-9660266en-7H9K5BO0Q3KI0612LMPAR2E4TM). What this tells private operators benchmarking themselves: - **20%+ EBITDA margin** is the public-comp benchmark for residential plumbing service. Operators below 12% have meaningful margin runway buyers will underwrite. - **Franchise-territory pricing** at urban metros gives a useful proxy for the value of route density. Roto-Rooter bought back the **San Francisco and Fort Worth franchise territories for ~$20.6M total** in March 2026 ([Yahoo Finance](https://finance.yahoo.com/markets/stocks/articles/does-roto-rooter-urban-franchise-111358483.html)). For a private operator with comparable urban metro coverage and recurring revenue, that pricing is a reasonable lower-bound benchmark. ## A worked example Consider a $4M-revenue residential plumbing business with $640K EBITDA: - 15% service-agreement revenue -> $600K ARR-equivalent - 30% captive replacement revenue -> $1.2M of which ~22% is EBITDA = $264K - 45% retail one-time service revenue -> $1.8M of which ~14% is EBITDA = $252K - 10% multifamily recurring revenue -> $400K of which ~25% is EBITDA = $100K - Total recurring + captive-replacement EBITDA = $264K + $100K = $364K - Retail / one-time EBITDA = $252K - Reconciles approximately to the $640K total Strategic buyer valuation: - $600K ARR x 2.0x = **$1.2M** for the agreement book - $264K captive replacement EBITDA x 5.0x = **$1.32M** - $252K retail one-time EBITDA x 3.0x = **$756K** - $100K multifamily EBITDA x 6.0x = **$600K** - **Enterprise value: $3.876M** - Implied blended EBITDA multiple: **6.1x** Financial-buyer valuation: - Same components, but apply 1.5x ARR (lower) and 2.5x retail one-time - $600K x 1.5x = $900K - $264K x 4.0x = $1.06M - $252K x 2.5x = $630K - $100K x 5.0x = $500K - **Enterprise value: $3.09M**, implied blended **4.8x EBITDA** The same business clears 6.1x to a strategic and 4.8x to a financial buyer. That ~26% spread is the reason a competitive process consistently captures more value than a one-buyer LOI. ## What this means for sellers Three implications: 1. **Build the service-agreement book before going to market.** A 12-month focused effort can move a 5%-recurring book to 15%, which moves the blended multiple by 0.5 to 0.75x. 2. **Document your captive replacement attach rate.** Most plumbing operators have meaningful captive replacement revenue but cannot prove it. ServiceTitan-driven data export with customer-history tagging is the diligence-ready format. 3. **Run a competitive process with at least one strategic.** The 1 to 2x EBITDA multiple difference between strategic and financial buyers is the single largest avoidable value loss in plumbing sale processes. ## The clean takeaway - Plumbing multiples reflect a multi-stream valuation: agreement ARR + captive replacement + multifamily recurring + retail one-time. - Buyers (especially strategics) value the agreement book like a SaaS company at 1.5 to 2.5x ARR, the captive-replacement book at 4 to 6x EBITDA, and the retail one-time book at 2.5 to 4x EBITDA. - The agreement share, churn rate, captive-replacement attach rate, and contract terms are the largest in-the-business levers on the multiple. - For where this lands across deal sizes, see [plumbing EBITDA multiples by deal size](/resources/plumbing-ebitda-multiples). For who pays the top of the range, see [plumbing strategic buyer landscape](/resources/plumbing-strategic-buyer-landscape). ## Primary sources - [Apollo - Strategic Minority Investment in Apex Service Partners](https://www.apollo.com/institutional/insights-news/pressreleases/2026/05/apex-service-partners-and-alpine-investors-announce-strategic-mi) - [Reuters - Apex Service Partners $10B Apollo Valuation](https://www.reuters.com/legal/transactional/apex-service-partners-nears-minority-stake-sale-10-billion-valuation-source-says-2026-05-27/) - [PitchBook - Alpine Targets $1B Fund (Apex add-on count)](https://pitchbook.com/news/articles/alpine-targets-1b-fund-to-invest-in-its-own-businesses) - [Chemed Q4 2025 Results (Roto-Rooter segment)](https://markets.ft.com/data/announce/detail?dockey=1330-9660266en-7H9K5BO0Q3KI0612LMPAR2E4TM) - [Yahoo Finance - Roto-Rooter Urban Franchise Buyout](https://finance.yahoo.com/markets/stocks/articles/does-roto-rooter-urban-franchise-111358483.html) - [Regalis Capital - What Is My Plumbing Company Worth?](https://learn.regaliscapital.com/what-is-my-plumbing-company-worth/) - [BizBuySell - Plumbing Valuation Benchmarks](https://www.bizbuysell.com/learning-center/valuation-benchmarks/plumbing/) - [BLS - Plumbers, Pipefitters, and Steamfitters Occupational Outlook](https://www.bls.gov/ooh/construction-and-extraction/plumbers-pipefitters-and-steamfitters.htm)