HVAC Services Market Update – November 2023

Robust Backlogs Fuel Servicing Contracts and M&A Activity in HVAC Services Market

Capstone Partners released its November 2023 HVAC Services Market Update, reporting that backlogs have grown significantly due to pent-up demand in Commercial end-markets as public strategics have faced limited competition bidding for large contracts, and smaller sector participants in the Residential segment have benefitted from consumers opting for maintenance and repair rather than full equipment overhauls.

Sector merger and acquisition (M&A) activity has declined year-over-year (YOY) through year-to-date (YTD) 2023; however, the non-cyclical nature that characterizes the HVAC Services market has attracted private strategics and financial buyers to the space. The Residential HVAC Services space has been a focal point for consolidation as it has provided recurring revenues through bi-annual inspections, constant maintenance, and repairs. Sector participants who effectively demonstrate defensibility have been targeted in platform investments in remunerative segments for buy-and-build strategies. Of note, aggregator Sila Heating & Air Conditioning, has been a prominent consolidator in the space, expanding its geographic footprint and demonstrating a dedication to growing local brands and operations.

Leading public strategic, EMCOR (NYSE:EME) has demonstrated the trend of nearshoring that has contributed to shaping the sector. EMCOR has shifted its focus to its U.S. business, with revenues in its U.S. Building Services representing a 12.9% increase YOY, versus its U.K. segment, a 7.4% reduction YOY. The move towards reshoring has supported critical supply chain resistance and capacity expansion as contract renewals within the U.S. remain robust.

Private equity firms have continued to deploy capital towards the HVAC Services market, despite a markedly down year in the broader market for private equity activity. Abundant levels of dry powder have developed a healthy backdrop for private equity transaction activity. Sponsors have historically been attracted to the sector, despite adverse economic conditions, and have recently continued their exposure to enhance portfolio holdings through add-on acquisitions, leveraging funding to break into new geographies, add technologies or capabilities, capitalize on operational synergies, and bolster scale.

Also included in this report:

• Which characteristics have driven higher multiples for HVAC Services companies.
• A deep dive into macroeconomic trends and government regulations that have affected the sector.
• What private equity players and recent sector transactions reveal about the evolving buy-and-build M&A strategies among active acquirers.

Capstone Partners’ Industrial Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Industrials industries. Our team partners with leading mid-to-large sized business in the HVAC that serve growing end-markets. For more information on HVAC Services market trends featured in this report or to speak with one of our Industrial Investment Banking Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.