Legence Holdings LLC

Overview Key strengths Key risks Well-established position with long-tenured, blue-chip clients that supports revenue stability. Small scale with high concentration in technology health care and government end markets. Focus on nondiscretionary heating, ventilation, and air conditioning (HVAC) services for mission-critical systems, supporting recession resilience. Limited pricing power and high labor costs that prevent significant improvements in profitability. Good record of growth both organically and through well-integrated acquisitions. Debt-funded merger and acquisition growth strategy that keeps leverage elevated and introduces integration risk. Ongoing transaction and integration costs that limit free operating cash flow (FOCF). Legence's strong revenue growth in the first half of 2023 was driven by strong demand in data centers, high technology, and health care. We expect this to

...We expect solid operating performance in 2023 as Legence Holdings LLC integrates recent acquisitions. Legence's strong revenue growth in the first half of 2023 was driven by strong demand in data centers, high technology, and health care. We expect this to continue as the company executes on its increasing backlog of $1.5 billion as of the second quarter of 2023, with about 25% coming from cross-selling between businesses. We expect significant revenue growth of 20%-25% in 2023 from Legence's acquisitive growth strategy to expand into new markets. We forecast margins to remain mostly flat as growth in its higher-margin energy advisory and sustainability segment is offset by acquisitions of lower-margin solutions delivery businesses. We forecast the company will improve cash flow in 2023. Legence underperformed our cash flow projections in 2022 largely due to increased working capital and significant costs related to merger-and-acquisition due diligence and enterprise resource planning system...

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