Your Plumbing Company Is Now Worth More Than a SaaS Startup

For decades, venture capitalists and Wall Street analysts treated software companies as the only asset class worth serious attention. SaaS multiples climbed to absurd heights during the 2020-2021 zero-interest-rate era, with the BVP Nasdaq Emerging Cloud Index reaching a median P/E ratio of 84x. Enterprise software was "the future." Everything else was boring, old economy, and not worth talking about at dinner parties.

That era is over.

By late 2025, SaaS P/E multiples had collapsed to 22.7x - falling below the S&P 500's average for the first time in the index's history. Bessemer Venture Partners, which tracks cloud company performance through their Cloud Index, documented the decline in stark terms: the median public cloud company lost more than 70% of its peak valuation. Companies that once traded at 30x, 40x, 50x revenue were suddenly trading at 5-8x revenue. Some below that.

Meanwhile, something remarkable happened in a sector that Silicon Valley has never once discussed at a board meeting: home services, mechanical contracting, plumbing, HVAC, and electrical companies started commanding premium acquisition multiples from the exact same private equity firms that used to deploy capital exclusively into technology.

The boring business became the smart money bet. And it happened for reasons that should matter enormously to every service business owner over 55 who has been quietly building recurring revenue for the past two or three decades.

The SaaS Multiple Collapse: What Actually Happened

The correction was not a temporary dip. It was a structural repricing driven by three forces that are not reversing.

First: interest rates. When the Federal Reserve held rates near zero from 2020 through early 2022, the discounted cash flow models that Wall Street uses to value growth companies produced enormous valuations for any business with rising revenue - even if that business had never earned a dollar of profit. When rates rose to 5.25-5.5%, those same models cut valuations in half or worse. Growth-at-all-costs math simply does not work when the cost of capital is 5% instead of 0%.

Second: the per-seat pricing model is breaking. For 15 years, SaaS companies charged per user, per month. The more employees a customer had, the more they paid. AI is dismantling this model from the inside. When an AI agent can do the work of 3-5 knowledge workers, companies do not need 3-5 seats. They need one seat and an AI subscription. Zendesk, Freshworks, and dozens of mid-market SaaS companies are watching their per-seat revenue projections evaporate as customers realize they can serve the same number of customers with fewer human agents.

Morgan Stanley's 2025 CIO survey found that 42% of enterprise IT buyers planned to reduce SaaS seat counts within 18 months as AI tools replaced workflows that previously required human operators. That is not a forecast about 2030. That is already in procurement budgets.

Third: churn. SaaS companies live and die by net revenue retention - the percentage of existing customer revenue that renews and expands each year. During the growth era, NRR above 120% was common because companies were adding users and upgrading tiers. That number has compressed below 110% for the median public cloud company, and for many mid-market SaaS businesses, it has fallen below 100%. Meaning: they are shrinking from their existing customer base and must acquire new customers just to stay flat.

The combined effect: a SaaS company that would have traded at 15x ARR in 2021 now trades at 5-7x ARR. A company that traded at 8x trades at 3-4x. The premium that the market assigned to "recurring software revenue" has been cut by more than half.

Why Private Equity Pivoted to Service Businesses

Private equity firms collectively hold $2.6 trillion in undeployed capital - what the industry calls "dry powder." That money has a clock on it. Most PE funds have a 5-year deployment window, meaning they must put capital to work or return it to their limited partners. The pressure to deploy is enormous.

When SaaS multiples were at 84x, PE firms could not compete with venture capital and growth equity for software deals. The prices were too high, the growth expectations too speculative, and the path to profitability too uncertain for the leveraged buyout model that PE firms use.

Service businesses offered something different: real cash flow, real margins, and real recurring revenue that did not depend on network effects or viral growth. A plumbing company with 2,000 maintenance contracts billing $29/month has $696,000 in annual recurring revenue that renews at 85-92% without a sales team. An HVAC company with 5,000 service agreements generating $150/year has $750,000 in predictable revenue with 90%+ retention because customers do not want their furnace to break in January.

That is the same revenue quality that SaaS companies claim - monthly recurring revenue with high retention - except it is attached to physical infrastructure that cannot be disrupted by an AI model. No one is building an AI that replaces the plumber who shows up at your house when a pipe bursts at 2 AM.

The numbers back this up. According to PitchBook, PE deal volume in home services increased 34% from 2023 to 2025. Firms that historically focused on technology and healthcare - including KKR, Leonard Green, and Roark Capital - launched dedicated home services verticals.

Real Deals, Real Multiples

Wrench Group, backed by Leonard Green & Partners, assembled more than 25 home services companies into a platform valued at over $14 billion. They acquired standalone HVAC and plumbing companies at 5-7x EBITDA, integrated them into a shared back-office infrastructure, and the combined entity trades at an implied 12-15x multiple. The arbitrage is straightforward: buy fragmented companies cheaply, professionalize operations, and sell the platform at a premium.

Apex Service Partners, another PE-backed platform, completed over 100 acquisitions of residential HVAC, plumbing, and electrical companies across the United States. Their acquisition criteria are public: $3M-$15M revenue, established customer base, service agreements in place, and a management team willing to stay through transition. They pay 5-7x EBITDA for companies that meet these criteria, with earnout structures that can push total consideration to 7-8x.

Vertex Service Partners, focused on roofing and exterior services, scaled to over $600 million in revenue through 30+ acquisitions. Their model mirrors Wrench Group's: acquire regional operators at 4-6x, centralize procurement, marketing, and finance, and create a platform that commands double-digit multiples.

Service Logic, backed by Leonard Green, built a $2 billion commercial HVAC platform through acquisitions of regional mechanical contractors. The acquisition multiples for individual companies: 5-7x EBITDA. The platform valuation: significantly higher.

Compare these to what is happening in SaaS. Thoma Bravo, the largest technology-focused PE firm in the world, acquired Zendesk in 2022 for $10.2 billion at approximately 5.2x revenue. They acquired Coupa Software for $8 billion at roughly 7.5x revenue. These are among the most prominent SaaS acquisitions of the past three years, and the multiples are converging with - and in some cases falling below - what PE firms pay for well-run service businesses.

Read that again. Thoma Bravo paid 5.2x revenue for a publicly traded SaaS company with 170,000 customers. Leonard Green paid comparable multiples for plumbing companies with 2,000 maintenance contracts. The gap between "tech" and "trades" has not just narrowed. For many transactions, it has disappeared.

The Recurring Revenue Premium in Services

The driver behind these valuations is not sentiment. It is math. PE buyers model acquisitions based on the predictability and durability of cash flows. And the data shows that service businesses with maintenance contracts and service agreements produce cash flows that are, by several measures, more predictable than SaaS revenue.

Customer retention in residential HVAC service agreements runs 85-92% annually, according to data from Service Titan and ACCA (Air Conditioning Contractors of America). For comparison, the median SaaS company's gross dollar retention - the percentage of revenue retained from existing customers before expansion - was 88% in 2025 per Bessemer's State of the Cloud report. The numbers are nearly identical, but the service business has a structural advantage: the customer's furnace or plumbing system is physically installed in their home. Switching costs are not about contract terms or data migration. They are about trust, access, and the fact that your technician knows their system.

Gross margins in service businesses also tell a compelling story. A well-run plumbing company operating primarily on maintenance contracts and service calls generates 55-65% gross margins. An HVAC company with a mix of service agreements and replacement installations generates 45-55%. For comparison, the median public SaaS company generates 70-75% gross margins - higher in absolute terms, but the gap is smaller than most people assume. And after accounting for the massive sales and marketing spend that SaaS companies require to acquire customers (often 40-60% of revenue), the operating margins frequently favor the service business.

Comfort Systems USA, a publicly traded mechanical services company, reported $6.3 billion in revenue in 2024 with operating margins above 10% and traded at approximately 15-18x EBITDA. That is a plumbing, HVAC, and electrical company trading at multiples that most SaaS companies can no longer achieve.

AI Cannot Disrupt a Pipe Wrench

The existential threat facing SaaS companies has no parallel in service businesses. AI is not coming for the plumber. It is not coming for the HVAC technician. It is not coming for the electrician who rewires a commercial building's panel.

What AI is doing to software is removing layers of human labor from workflows. Customer support agents replaced by chatbots. Data entry clerks replaced by document processing models. Junior developers replaced by code generation tools. Each of those replacements removes a "seat" from the SaaS vendor's revenue model. The customer still needs the outcome, but they need fewer licenses to achieve it.

Service businesses face a different dynamic. AI can improve scheduling, optimize routing, automate invoicing, and enhance diagnostic capabilities. Service Titan and Housecall Pro are already deploying AI features that help technicians diagnose problems faster and dispatchers route calls more efficiently. But none of these tools eliminate the need for the technician. They make the technician more productive, which means higher revenue per tech, better margins, and more profitable operations.

The irony is significant: AI makes SaaS companies less valuable by reducing the number of seats their customers need, while simultaneously making service businesses more valuable by improving the productivity and margins of their existing operations.

What This Means for You

If you own a service business generating $5M-$50M in revenue and you have been telling yourself that your company is not the kind of business that sophisticated buyers want - that narrative is outdated by at least three years.

The sophisticated buyers - PE firms with billions in dry powder, strategic acquirers building national platforms, family offices looking for stable cash flows - are actively searching for businesses like yours. They are paying 5-8x EBITDA for companies with strong recurring revenue, documented processes, and a customer base that does not depend on the owner answering every phone call.

The SaaS founders who raised $50M in venture capital and built a company with $20M in ARR and negative operating margins are now worth less, on a multiple basis, than the plumbing company owner who spent 25 years building 3,000 maintenance contracts and a team of 40 technicians.

That is not an opinion. That is what the market is pricing.

The question is not whether your business has value. The market has already answered that question emphatically. The question is whether you are positioned to capture the premium multiples that PE firms are paying right now, or whether structural issues - owner dependency, customer concentration, undocumented processes, project-heavy revenue mix - will push your multiple to the lower end of the range.

The difference between 4x and 7x on $1.5M EBITDA is $4.5 million. That is not an abstraction. That is the difference between a comfortable retirement and generational wealth. Between paying off the mortgage and funding your grandchildren's education. Between exiting on your terms and accepting whatever someone offers because you waited too long.

The window is open. PE dry powder is at record levels. Service business multiples are at record highs. SaaS companies are absorbing the correction that comes from a structural repricing. Every quarter that passes, more PE firms enter the home services space, more platforms complete acquisitions, and the competition for quality acquisition targets increases.

You built something that the smartest money in the world now considers a premium asset. The only remaining question is whether you will capture that premium - or let it pass.

For the industry-specific view, read how to sell a plumbing business and what rollups are really buying. The PE activity behind these valuations is covered in PE firms with $2.6 trillion coming for your industry. And see the three numbers that actually determine your business value.

Or use our free business valuation calculator to see what your company could be worth.