HVAC Equipment Market Update – October 2023

Strategic Buyers Remain Active as Secular Tailwinds Supports HVAC Equipment Market Resilience

Capstone Partners released its October 2023 HVAC Equipment Market Update, reporting that public companies in the space have played a leading role in sector consolidation, seeking acquisitions to meet the demands of the evolving sector. Businesses with advanced technologies and greater geographical presence have experienced healthy merger and acquisition (M&A) interest from buyers.

Sector M&A activity has declined year-over-year (YOY) through year-to-date (YTD) 2023; however, quality companies with defensible margins and a high degree of revenue visibility have contributed to robust M&A pricing in the HVAC Equipment market. Select private equity (PE) firms have remained attracted to the low capital expenditures and strong customer retention in the sector but have waited on the sidelines to deploy vast reserves of dry powder, which provides a favorable backdrop for future PE dealmaking upon a more normalized economic environment. Public HVAC equipment providers have leveraged healthy backlogs and successful bolt-on acquisitions which have been accretive to revenue growth, driving share price expansion and outpacing the S&P 500 and Industrials benchmark.

HVAC equipment providers have increasingly pursued inorganic growth to bolster product offerings and add sustainable solutions. Businesses in the space have continuously adapted to energy efficient standards and government regulations, with those able to penetrate niche end markets garnering strategic buyer interest. Of note, Modine Manufacturing (NYSE:MOD) acquired Napps Technology, a Texas-based manufacturer, in July for an undisclosed sum. The deal includes Napps’ Jetson brand which develops high-quality HVAC solutions for commercial and industrial applications with a focus on K-12 classrooms. In addition, Modine has seen its share price rise 123% YTD with its cooling solutions for high-performance computing deployed for use in artificial intelligence (AI) and adjacent applications. Industry leader Trane Technologies (NYSE:TT) plans to double its deployed capital by the end of the year, adding to its acquisitions of Helmer Scientific and MTA in 2023. The strategy aligns with its balanced approach to improve long-term shareholder returns and share repurchases, a common theme among sector peers.

Also included in this report:

• What characteristics have driven higher multiples for HVAC Equipment companies.
• A breakdown of macroeconomic trends that have affected the sector.
• What public players and recent sector transactions reveal about the evolving strategies and M&A appetite among active buyers.