HVAC M&A: no cooldown in sight

The HVAC industry is one of the most saturated in the private equity world, but we’ve continued to see consistent M&A activity throughout 2023.

As an essential home service operated by highly fragmented, small businesses dispersed throughout the United States, investors began pouring capital into this market in a serious way during the last half decade. Now, even with a huge volume of private equity ownership, deal activity is strong in the HVAC industry. Here’s why:

Team expansion:

Because this space has a history of high deal activity, many vice presidents and heads of corporate development are starting to hire associates of corporate development to assist in ongoing M&A. While this trend is on the one hand in response to the existing activity we’ve seen in the HVAC space, we also believe this increased support will allow for even more deals to move forward.

Diversification:

Another reason we’ve continued to see activity in this sector is that HVAC platforms are adding other services to their portfolios. While there are still plenty of HVAC businesses to acquire, corporate development professionals have started to evaluate electrical, mechanical and other trade services as potential add-ons that would strengthen their platform’s diversity and allow for continued growth now that the HVAC side has proven to be stable and reliable.

Steady demand:

Private equity investors originally entered the HVAC industry because of the stability it offers as an essential service, and this is the key reason activity in this space has stayed so consistent. Business and consumer services platforms are not “fad plays.” Their services will always be in demand. This demand also means there is a great deal of fragmentation, even with five years of steady M&A activity. Our clients have told us they are still identifying HVAC businesses that have yet to be acquired and need corporate development leaders who can continue identifying new investment targets.

Bigger private equity sponsors:

Consistent acquisition activity in this space has resulted in multiple large-scale HVAC platforms, which are now piquing the interest of larger private equity firms. As new investments pour into the HVAC industry, we expect this could result in a greater volume of mergers between existing platforms. This will also likely bring HVAC platforms from the middle to upper middle market in the coming years.

The takeaway:

We’re pleased to say that HVAC platforms are still seeing a steady degree of M&A activity. While several new factors such as increased hiring, larger investments and diversification have likely contributed to this activity, we believe consistent demand on the consumer side of this industry is the primary reason we’ve seen continued deal activity.

To learn more about our recruiting capabilities for corporate development roles in the business and consumer services industry, contact Derek Gracey at derek.gracey@charlesaris.com or (336) 217-9152.