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Leslie's (NASDAQ: LESL), the country's largest pool supply retailer, is reportedly preparing to file for Chapter 11 bankruptcy as soon as next week, handing ~$750 million of debt to lenders in exchange for equity. For every home and commercial services operator who leveraged up during the pandemic demand spike, the collapse is a preview of what the bill looks like when that debt outlives the boom that justified it.

Pool construction rose 21% during the pandemic and Leslie's used that momentum to go public a second time in October 2020 at a sought valuation near $3 billion. Proceeds trimmed net long-term debt to under $800 million by late 2021, but the company never got structurally lighter as EBITDA fell back toward pre-boom levels. It also pushed past 1,000 storefronts chasing that same demand, even as it missed financial benchmarks in 2022 and 2023. Expanding into a boom and calling it a platform is one of the most expensive mistakes in services investing.

The ripple hits further than retail. Pool cleaning and maintenance operators depend on Leslie's and similar distributors for chemical supply, equipment parts and product availability. A distressed or restructuring supplier means potential inventory gaps, longer lead times and pricing uncertainty for the service businesses downstream. For pool cleaning operators already navigating a post-pandemic normalization in new pool construction, a weaker supply chain is another headwind on top of softening demand.

By this summer, debt stood near $750 million against a shrinking earnings base. Third-quarter sales fell 8.4% while adjusted EBITDA nearly halved. There was no cushion left to absorb a downturn that outlasted the company's own projections. The debt did not grow. The business shrank underneath it.

This pattern is not unique to pool supplies. Home and commercial services saw the same wave of pandemic-era demand, easy credit and rapid roll-ups. The operators who leveraged up fastest during the spike are the ones now carrying that debt into a normalized market. The softening is not a surprise. The balance sheet is.

The lesson for anyone underwriting or operating in this space is direct: size debt against the demand you expect to still have in year five, not the demand driving today's growth rate. Leverage does not know the boom is over. It just keeps compounding until something has to give.

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HVAC costs are up structurally, not cyclically. Labor, refrigerant, equipment and materials are all moving in the same direction and none of the inputs driving that move are reversing. Carrier's CEO confirmed it on the company's latest earnings call, citing tariffs, fuel, copper, steel and aluminum as reasons it will keep raising prices. The operators who win this cycle will not be the ones with the lowest sticker price. They will be the ones who can prove they have pricing power when they raise it and a sales system that converts sticker shock into an approved monthly payment.

1. The cost stack is structural. Labor runs 40-60% of a typical HVAC invoice, with rates up ~20% since 2023. The A2L refrigerant transition adds 15-30% to equipment costs and Section 232 tariffs of up to 50% on steel, aluminum and copper are running through the entire supply chain, according to AirProHQ. These are not temporary inputs. They are the new cost floor. An operator who has not raised price to reflect them is subsidizing the customer's upgrade out of their own margin.

2. Demand supports the raise. Carrier tracks the US residential market at ~7.5 million units this year, still below the 9.2 million sold in 2024, while AirProHQ projects 2026 as a record year for forced replacements at ~3.5 million units as 2005 to 2007 housing-boom systems reach end of life. When a system fails in August, the homeowner is not shopping on price. They are shopping on availability and trust. Carrier gained ~30 basis points of residential share despite raising prices aggressively. That is what pricing power looks like in practice.

3. Financing converts the raise. The Air Conditioning Contractors of America's Contractor of the Future survey found close rates rise from 38% to 49% when contractors offer financing, with monthly-payment framing lifting the financed share of sales by 21 points. A $12,000 system presented as $12,000 triggers sticker shock. The same system at $189 per month closes. Financing is not a concession. It is a margin protection tool.

For sponsors underwriting HVAC platforms, the question is not whether costs are up. Everyone's costs are up. The question is whether the target has raised price to reflect the new cost floor, whether it can do so without losing share and whether its sales team converts sticker shock into a monthly payment before the homeowner calls the next contractor. Those three capabilities decide who wins this cycle.

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A technician gets a call from a recruiter at a PE-backed platform: better pay, guaranteed weekends off, a bigger benefits package. It happens across HVAC, plumbing and home services constantly now, and the owners losing people to it are not always losing the pay fight. Peter Bonfe, second-generation owner of Bonfe's Plumbing, Heating and Air Service in the Minneapolis and St. Paul area, has watched technicians leave for a PE-backed competitor promising no nights or weekends. He is not convinced that is sustainable for the customer long term but he is also not pretending the offer was not real.

What actually keeps people does not show up on a comp plan. Chris Parham, co-owner of Parham Heating, Cooling, Plumbing and Electric in Trenton, Tennessee, has watched two employees who came from PE-backed firms describe what sets his 50-person company apart. Neither one led with money. One technician told him directly: I can come and talk to you, and that makes a big difference. Parham has structured the business around being willing to sacrifice gross margin points to keep the people he calls rockstars, a decision he would not control if he had sold.

Tiago Santana, co-founder of the Cooling Company in Las Vegas, points to the structural reason roll-ups struggle here. Most operate on a three to five year exit window, and technician relationships, customer trust and local reputation are exactly what that window cannot preserve. The PE model is optimized for an exit. The independent model can be optimized for the people. Bonfe puts it differently: staying independent means operating around real inefficiencies, because some of those inefficiencies are just the cost of running a business with actual humans in it.

For lower middle market operators competing against well-capitalized platforms for the same technicians, the retention advantage is real but it has to be made tangible. It is not enough to be accessible. Technicians need to feel that access in the day-to-day, in how decisions get made, in who picks up the phone and in whether the owner knows their name. That is the thing a roll-up cannot replicate on a three to five year hold, and it is the thing an independent operator can build into every interaction without a capital budget.

None of this means matching every offer dollar for dollar. It means making sure the thing PE cannot buy is something your technicians can actually feel.

WestGate Partners (WGP) is an independent sponsor focused on acquiring and growing lower middle market businesses in residential and commercial services. We bring institutional experience, tailored capital with hands-on partnership to help owners transition, grow and preserve their legacy. By partnering with strong operators, we build enduring businesses in economically-insulated industries.