CoolSys Inc., which has built itself into the largest refrigeration and heating business for commercial clients in the country, named Rich Wyckoff as its new chief executive.
“Everyone loves air conditioning,” Wyckoff told the Business Journal. “The industry is very exciting and big.”
Wyckoff takes over a company that’s approaching a billion dollars in annual sales, having employed a roll-up strategy to grow to more than 3,200 employees who work at 26 companies, including the brand name CoolSys.
The company’s customers are primarily in the supermarkets, retail, restaurants, commercial and industrial markets.
Last year, it acquired companies in Georgia, Pennsylvania and Texas and now services more than 45,000 customer locations for some of the nation’s most prominent companies like Chipotle, Starbucks, Walmart and Costco.
“Given his significant experience successfully scaling services-oriented businesses and focus on creating a positive employee culture, we believe Rich is well-suited to lead the CoolSys team in executing its strategic plan,” Chairman Rick Frier, who served as interim CEO and president for the past year, said in a statement.
“I am confident that Rich will continue to build on the company’s recent organic and in-organic growth.”
Name Change
In 2016, Boston-based private equity firm Audax Private Equity bought Anaheim-based Source Refrigeration & HVAC Inc. when it had about $240 million in annual sales and 1,200 employees.
Audax hired Adam Coffey as CEO and he later renamed the company as CoolSys and moved its headquarters to Brea. Coffey engineered the roll-up strategy that resulted in 11 acquisitions alone from 2019 to 2021.
In 2020, Coffey told the Business Journal that annual sales were at a $500 million run rate and he was aiming for $1 billion.
In 2019, Audax sold CoolSys to Ares Management Corp. in Los Angeles for an undisclosed price that left management “smiling,” Coffey said.
Burton Hong, CoolSys’ general counsel, in 2020 was named one of five winners at the Business Journal’s General Counsel Awards in the category of private company.
Coffey left the company in late 2021 and was succeeded by Anesa Chaibi, who previously served as CEO of HD Supply Facilities Maintenance. She left in 2023 for undisclosed reasons and was replaced on an interim basis by Frier while the company searched for a replacement.
“I’m looking at this as a long-term opportunity,” Wyckoff said about being the fourth CEO in three years. “This was a significant opportunity for me to be a part of a good company and make it a great company.
Ice Experience
Wyckoff has more than 30 years of experience leading large-scale service businesses. Most recently, he served as interim CEO of Pritchard Industries, a provider of facility services, where he remains chairman of the board of directors.
From 2019 to 2023, he was CEO of Arctic Glacier, a provider of ice products and related services. While at Arctic Glacier, Wyckoff and his team returned the business to meaningful growth and more than doubled EBITDA, CoolSys said in the announcement about Wyckoff’s hiring.
Prior to Arctic Glacier, Wyckoff served as CEO of U.S. Security Associates, an international security services provider that was sold to Irvine-based Allied Universal, the world’s largest provider of private security services.
While he intends to continue living in his hometown in Wayne, Pa., Wyckoff said the company will “100%” retain its headquarters in Brea.
Moody’s Report
CoolSys’ organic growth is “in the low-single digits,” more than 50% of its revenue comes from recurring maintenance service contracts, and it has a 98% retention rate with key customers, according to Moody’s Investors Service.
CoolSys’ broad geographic reach and status as a “one-stop shop” is a competitive advantage over smaller local or regional players, attracting large national or super-regional customers, Moody’s said.
The ratings agency has questioned the amount of leverage used in CoolSys’ roll-up strategy. Moody’s in 2020 projected CoolSys would reduce its debt-to-EBITDA leverage from about 6 to around 5.6 by the end of 2020. However, in its most recent report, Moody’s said the ratio was around 6.6 as of a year ago.
“The aggressive debt-funded acquisition strategy will further pressure free cash flow generation, weighing on the company’s credit profile,” Moody’s said.
Last July, Moody’s Investors Service reaffirmed its B3 rating with a stable outlook. B3 is considered high-yield debt, six grades below investment grade. The company has a $360 million senior secured first lien term loan due 2028 and an $80 million senior secured first lien delayed draw term loan.
Wyckoff said the company and parent Ares Management are “very comfortable” with CoolSys’ capital structure and access to capital.
More Buys
The new CoolSys CEO sees opportunities to make additional acquisitions.
“The industry is still highly fragmented,” Wyckoff said. “Our customer base is consolidating as well.
On the client side, small independent grocery stores are being absorbed into regional chains that are being bought by national players. So are supply chains. A lot of service providers are under pressure. CoolSys has an opportunity to acquire these businesses and bring them onto our platform.”
Wyckoff doesn’t like the roll-up industry’s mantra of “do no harm” when making acquisitions, saying that philosophy doesn’t add value.
“We need a valuation plan where one plus one equals three or four,” Wyckoff said.
He sees opportunities such as new EPA regulations forcing companies to update their air conditioning and heating systems. CoolSys has the capability to take away or repurpose old systems as well as install new ones.
“As those regulations roll through manufacturers, there will be a significant replacement of assets to be more green and environmentally compliant,” Wyckoff said.
“We have the entire life cycle covered. It’s a great industry, a great company and a great time.”
Next Steps
Former CEO Coffey previously told the Business Journal that he aimed by 2023 for another sale to a large private equity or an initial public offering.
Wycoff said there aren’t any immediate plans for an IPO, although it’s a possibility.
“The market will tell us. This is an industry with tremendous headroom. There is a significant runway.
“We’re a company that’s growing and always looking for great talent. Winners who want to be on a winning team, contact us. We’re hiring.”
