If you live in the US, chances are your air conditioning has been working overtime for the last couple of weeks.
The heatwave that settled over large swaths of the country and smashed temperature records is, thankfully, beginning to subside now, but it highlights how important heating, ventilation, and air conditioning (HVAC) systems are in our everyday lives — especially amid a changing global climate.
For private equity (PE) investors, the HVAC industry is a no-brainer. Demand for HVAC products and services is constant, regardless of geography or season. Additionally, because of how it’s fragmented, the industry is ripe with acquisition opportunities.
In this PE Playbook, the Grata team has put together the need-to-know trends for investors considering making moves in the residential, commercial, and industrial HVAC segments, including:
- How the industry is fragmented
- Which sector has seen the most growth in the last year
- Where dealmakers are making acquisitions
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f8853f968f1af5da8e_667ebcce1aee0cbac7aa10b0_HVAC%2520Map.png)
The market map above is not intended to be an exhaustive representation of companies in the space.
Companies that provide services that fall into multiple segments are categorized in this report by their primary offering.
Industry Overview
Market Distribution
Geography
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f8853f968f1af5daa1_667ebdaa8c36bf7f558ada29_HVAC%2520US%2520Map.png)
Source: Grata
In the US, HVAC companies are more concentrated in states that typically experience more extreme temperatures.
California, Texas, and Florida — all of which often see sweltering summers — take the top three spots. New York, Illinois, and Massachusetts, which are obviously known for bitter winters, also have a high number of HVAC companies.
Ownership
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f8853f968f1af5da9e_667ebddb603408c97418af43_HVAC%2520Industry%2520Fragmentation.png)
Source: Grata
HVAC is a significantly fragmented space. There is no singular industry leader — Trane, the largest company in the space, accounts for only 4.1% of employees. This, paired with the fact that the lion’s share of companies in the industry are independently owned, makes the HVAC industry a potential gold mine for investors looking to bundle companies.
Segment Distribution
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f7853f968f1af5da74_667ebe06bcf758159ae672ca_HVAC%2520Segments.png)
Source: Grata
This report focuses on the following segments of the HVAC industry. Grata users can see a curated list of some of the companies used to create each segment by clicking the links below.
- Residential: Companies in this segment provide systems that heat, cool, and improve indoor air quality for individual homes.
- Commercial: These companies provide HVAC services to large properties, including business buildings, hospitals, schools, restaurants, rental properties, and more.
- Industrial: Companies in this space offer HVAC systems designed for larger-scale efficiency at chemical processing, manufacturing, water treatment, and other facilities.
Public Comparables
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f7853f968f1af5da7e_667ebe87fe35fdbc98d44954_HVAC%2520Public%2520Comps%2520(1).png)
Source: Grata
Because of the necessity of their services and the growing demand for energy-efficient systems, HVAC companies are strong financial performers across the board.
Companies focusing on the residential market see higher EBITDA multiples on average because they have a more consistent customer base than the other two segments. Residential work tends to be more maintenance-driven than new installations. This steady demand is pretty much guaranteed to keep climbing as the climate continues to change, making residential HVAC companies more valuable to investors. Ongoing consolidation of mom-and-pop businesses in the space is also adding to the value of companies in the space, driving up multiples.
The commercial HVAC sector, on the other hand, brings in most of its revenue from new construction installations, which means it’s largely dependent on new projects and therefore more vulnerable to shifts in the economy.
Meanwhile, the industrial HVAC market is also seeing above-average performance across nearly every metric evaluated here. New advanced tech solutions are driving up demand for industrial HVAC applications in industries like healthcare, semiconductors, aerospace, and data centers, according to Benchmark International. Because these industries use a lot of advanced electronics, they consume a lot of power, which means they need high-quality HVAC systems to maintain safe operating temperatures.
Another factor driving the industrial HVAC market is the increasing adoption of cleanrooms — environments that are highly controlled to eliminate dust, airborne microbes, and aerosol particles. These spaces are used for major industries including pharmaceuticals, electronics, medical equipment manufacturing, and laboratories.
VC & Growth Comparables
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f8853f968f1af5da91_667ebf43fe35fdbc98d51de9_HVAC%2520VC%2520%2526%2520Growth%2520Comps.png)
Source: Grata
While VC-backed companies account for the smallest slice of the HVAC industry, startups in the space are raising healthy rounds from VC investors, especially at the growth and seed stages. One likely reason for this is that the demand for more energy-efficient and environmentally friendly HVAC solutions is driving the need for technological innovation in the space.
Many of the target companies listed in the table above provide tangential products rather than pure HVAC services:
- Voomi Supply sells residential HVAC equipment — such as air condensers, pumps, ducts, and more — online.
- Sparkfund offers program management, project implementation, and financing services for utilities companies and building owners that are transitioning to more energy-efficient systems.
- Pascal is developing solid refrigerants, which are reportedly more energy-efficient than gaseous refrigerants and contribute significantly less harmful emissions.
Kelso Industries, on the other hand, does offer pure HVAC services, along with plumbing and electrical. Kelso raised a $50M round in December from Paceline Equity Partners, which will reportedly be used to acquire multiple complementary businesses.
Notable Acquisitions
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f7853f968f1af5da7b_667ebfba84684f66968b9d44_HVAC%2520M%2526A%2520transactions.png)
Source: Grata
Historically, the residential sector, which has a more consistent customer base than the commercial and industrial spaces, has dominated HVAC M&A transactions.
However, in the past year, the commercial sector has trounced residential and industrial HVAC. A likely driver for this trend is the push for more sustainable HVAC solutions by major cities and municipalities in recent years. For example, in 2019, New York City enacted the Climate Mobilization Act, which is designed to cut carbon emissions from large buildings by 40% by 2030. A huge part of reaching that target is retrofitting HVAC systems for around 50,000 large buildings.
New technological innovations like smart thermostats and cloud-based HVAC management systems are likely also contributing to increased demand for commercial services.
Industrial HVAC acquisitions, on the other hand, are pretty few and far between. We hypothesize that this is because industrial systems are much larger and more complex than residential systems, and they require more frequent maintenance. Further, because these systems are designed for buildings like hospital systems, chemical plants, and water treatment facilities, any system malfunctions could cause significant damage. However, companies operating in the industrial sector offer a major opportunity for investors looking to make moves in the HVAC industry. Industrial HVAC companies also see higher average gross profits ($3.2M) than residential ($2B) or commercial ($1.8B).
![](https://cdn.prod.website-files.com/616729d16d42933d24fdcf02/66d0e1f8853f968f1af5daa4_667ebf9ee6c883e189131924_HVAC%2520Notable%2520Acqs.png)
Source: Grata
Residential: Littlejohn & Co Acquires United Air Temp
In April, Connecticut-based private investment firm Littlejohn & Co announced its acquisition of United Air Temp (UAT), which provides HVAC and plumbing services to homeowners in the Mid-Atlantic and Southeast US. Exact terms of the deal were not disclosed.
Prior to the deal, UAT had been steadily expanding its footprint through strategic acquisitions. William McDavid, principal at Littlejohn, said the deal would help UAT continue to execute on its growth plans.
If you’re an investor interested in companies like UAT, try these:
- Beyer Air Conditioning & Heating
- Aace’s Heating, Air Conditioning & Swamp Coolers
- Air Control Incorporated
Commercial: Service Country Acquires McGee Heating & Air
Service Country, an HVAC and electrical services company owned by Grove Mountain Partners, acquired McGee Heating & Air in March. McGee provides services in Georgia and South Carolina.
The deal supports Service Country’s strategy of acquiring and partnering with companies operating in smaller municipalities in the Southeastern US.
If you’re an investor interested in companies like McGee Heating & Air, try these:
Industrial: SPX Technologies Acquires Ingénia Technologies
In February, SPX Technologies announced its acquisition of Canada-based Ingénia Technologies for around $300M USD. Ingénia’s products are frequently used in industries like healthcare, pharmaceuticals, and food processing.
Through the deal, SPX added Ingénia to its Cooling platform and expanded its presence in the engineered air movement (EAM) solutions space.
If you’re an investor interested in companies like Ingénia Technologies, try these:
Get the Most Out of the Playbook
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