Global HVAC market is on the verge of huge growth that is obvious. Recently the same has been reiterated by a report published by MarketWatch. According to MarketWatch, “It is expected that the market for the HVAC will experience a notable expansion in the foreseeable future (till 2030). This growth can be attributed to various factors, such as a rise in individual spending, increased urbanization around the world, and greater adoption of innovative technologies.”
Factors such as the cost of production, availability of essential raw materials, and the strength of key competitors are some of the key drivers of the market. However, on the other hand, there are several restraints that affect the growth of the HVAC market. These include slower HVAC market growth in some countries, economic restraints faced by emerging countries, and various obstacles in the business market.
With this backdrop, globally small and big companies operating in the HVAC field have been trying to expand their reach. That may be through partnership or merger & acquisition. The trend will be clearer towards the turn of this year. Let me now focus on a few of the recent developments.
Consolidation is the way
According to the available information from M&A advisory services company, Anchor Peabody, the company has initiated coverage of the HVAC, Plumbing & Electrical trades – three integral parts of the complete HVAC solutions. Their coverage will include all the constituents in and around the HVAC, Plumbing & Electrical industry with a goal of accumulating the type of granular industry knowledge necessary to help their clients achieve outsized M&A outcomes.
The company stresses on the need for specialized, high-horsepower, industry-focused investment banking services. They inform, “Our mandate is to help family businesses and entrepreneurs understand the levers which drive value in an M&A process and seek to close the significant multiple arbitrage gap which exists today for the industry’s best independents. With over 50 private equity-backed platform investments consolidating HVAC, Plumbing & Electrical service companies throughout the U.S., we believe it is imperative for independent business principals and owners to be armed with the type of financial acumen typically reserved for institutional investors. We accomplish this through a dedicated focus on HVAC, Plumbing & Electrical, seeking to attain premium valuations, structure, and terms by knowing who is doing what to whom, and why.”
They also state, “Although there has been significant consolidation in HVAC, Plumbing & Electrical over the last few years, we believe consolidation is here to stay and will only become more prevalent in the coming years. Inquiries on new institutional capital looking to enter the market due to its attractive non-discretionary consumer spending drivers occurs regularly, many looking for non-auction situations. We believe the sheer magnitude of interest from potential sophisticated buyers/investors requires a firm like Anchor Peabody to insert themselves into the middle – so that our clients can continue to run their businesses while we handle the heavy lift required in a structured M&A process.”
Combining statements from Anchor Peabody, we find that they are quite optimistic about the potential of consolidation in the HVAC market. At the same time, considering the growth potential of the HVAC market, they stress on capital infusion through different types of tie-ups.
Improving offerings through M&A
This year in February, Panasonic Corporation announced that its Heating & Ventilation A/C company completed the acquisition of all of the outstanding shares of Systemair AC SAS, Systemair S.r.l. and Tecnair S.p.A., which operate commercial air-conditioning businesses owned by Systemair AB (Systemair), a leading Swedish manufacturer of air quality and air-conditioning equipment.
The acquisition was completed after their decision to acquire all of the shares in Systemair’s air-conditioning business, announced on November 17, 2022, was approved by the regulatory authority under the competition law. The purchase price was 100 million euros.
Systemair’s air-conditioning division manufactures commercial hydronic systems. This type of air conditioning produces hot and chilled water by capturing heat from the ambient air and circulating it through spaces to control room temperature, thereby reducing the use of refrigerants.
Systemair has also been a pioneer in developing and marketing products that use R290, a natural refrigerant with an extremely low greenhouse effect.
Panasonic currently markets commercial packaged air conditioners and multi-split air-conditioning systems for buildings in Europe. The acquisition of Systemair’s subsidiaries will enable Panasonic to respond to rapidly growing environmental demands and regulations by acquiring the commercial hydronic systems business. The combination of the two companies’ resources will lead to stronger development, production, sales and maintenance structures, as well as the development of highly efficient, environmentally friendly products and the creation of new, high value-added systems for hot-water supply and space heating in addition to air-conditioning systems.
Thus, in Panasonic’s action, we see a target of better & innovative product development and better & rapid market response. These are the most common aims with which manufacturing companies are moving for M&A.
Providing better and wider service through M&A
In HVAC service sector too, the trend of integration is easily visible. Headquartered in Nashville, Tenn., Leap Partners is working to connect the best small and medium-sized HVAC, plumbing and electrical service businesses in the Southeast (USA) to build a world-class service provider. Under Leap Partners’ ownership, these businesses are committed to providing industry-leading customer satisfaction and employee engagement.
Towards the beginning of this year, Leap Partners, the fast-growing home services company with HVAC and plumbing businesses across the Southeast (USA), decided to expand in the Alabama and Kentucky markets through its new acquisitions of A1 Heating & Air Conditioning based in Huntsville, Ala., and Engineered Heating and Air based in Lexington, Ky.
Established in 2007, A1 is a full-service air conditioning and heating service provider that serves Huntsville and Madison, Ala., and their surrounding communities. The former owner, Steve Tangeman, and his team decided to work with the existing Leap Partners branch in Huntsville – Conditioned Air Solutions.
Engineered Heating and Air too is a full-service heating and air conditioning company in Lexington, Ky., that has served the surrounding community for over 23 years. The former owner of Engineered Heating and Air, Tom Robeson, was taken to lead his team and continue to operate as Engineered Heating and Air.
Interestingly, over the last 10 months, Leap Partners’ portfolio has grown to include seven HVAC, plumbing and electrical companies across Alabama, Kentucky, and Tennessee. The portfolio includes companies of all sizes, and Leap Partners provides support and investment for these businesses to grow and expand while empowering the local leaders to manage with autonomy.
Final words
Even today, the HVAC industry is highly fragmented. The trend of consolidation will create better cash flow, wider coverage and more reliability. If we notice, the HVAC industry’s growth did not halt even during corona pandemic period, rather the demand for better indoor air quality increased at that time. Thus in that sense, it is a recession-proof industry.
With global climatic changes, and growing affordability of the young demography, the need for HVAC products is increasing. To support this huge market growth, development of lager capability is very essential – and that is possible through more capital infusion, as well as more innovation, more skill & reach development. Properly planned consolidation addresses all these, thus the process will continue with more vigour in the coming days.
By P. K. Chatterjee (PK)
