Apr 20, 2022

HVACR Equipment Market Update: Equipment Providers Expand Offerings to Capitalize on Shifting Consumer Preferences

HVACR Equipment MarketShift Towards Energy Efficient Equipment Driving Upgrades, Installation, and Retrofit Demand

Capstone Partners released its April 2022 Heating, Ventilation, Air Conditioning, and Refrigeration (HVACR) Equipment Update, reporting that consumer preferences continue to shift towards energy efficient equipment and products that improve indoor air quality (IAQ), driving upgrade, installation, and retrofit demand. While sector participants continue to grapple with low inventory and materials availability, the presence of healthy backlogs points to a continued environment of elevated demand that is outpacing supply.

In recent years, energy efficiency has become a primary driver of retrofit and upgrade demand in the HVACR Equipment sector as consumers and building owners demonstrate a strong preference for sustainable systems amid mounting environmental concerns. HVACR equipment providers have invested significant resources into the development of energy efficient products to meet rising demand. In addition to organic development, large HVACR players have consolidated companies to bring differentiated capabilities in-house. This has presented opportunities for smaller manufacturers with technology-enabled systems. Manufacturers offering equipment that monitors and minimizes the energy use of HVACR systems, including controls and sensors, are expected to capture elevated demand and acquirer interest.

In addition to a heightened focus placed on energy efficiency, consumers now possess a renewed interest in IAQ as a result of COVID-19. With the pandemic bringing attention to antiquated systems, home and building owners continue to look for products that improve air quality for occupants. HVAC equipment providers are responding to this shift in demand with greater IAQ transparency. As employers look to execute return to work plans, IAQ will be a critical factor to ensure occupants’ comfort, health, and safety.

Merger and acquisition (M&A) volume in the HVACR Equipment sector was exuberant in 2021, outpacing 2020 by 23.1%. Deal activity has continued at a healthy pace in Q1 2022, declining modestly from the robust levels recorded in Q1 2021. Privately owned businesses with innovative technology-enabled equipment, IAQ, and energy efficiency solutions are expected to attract acquirer appetite and garner premium valuations in the M&A market. Both strategic and private equity (PE)-backed buyers have targeted businesses that add scale or complementary product offerings to existing operations.

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