HVACR Services Market Update: Favorable Tailwinds To Buoy Ongoing M&A Activity

HVACR Services Sector Experiences Unprecedented M&A Activity

Capstone Partners released its February 2022 Heating, Ventilation, Air Conditioning, and Refrigeration (HVACR) Services Sector Update. From its vantage point, Capstone has seen demand for HVACR services recover from the travails of the pandemic, with contractors regaining access to facilities and projects coming back online. Healthy construction activity, robust levels of consumer spending, and growing interest in air quality and energy efficiency are anticipated to continue driving growth for HVACR Services in 2022. New legislation and government incentives are also expected to drive installation, retrofit, and upgrade demand with the Federal Government increasingly pursuing stringent environmental regulations regarding HVACR systems. As for potential headwinds, labor force shortages and rising equipment prices are expected to challenge profit margins for sector participants in the near-term.

The resilience of the sector, low-interest rates, and a seller-friendly tax environment have driven unprecedented merger and acquisition (M&A) activity, with 2021 deal volume far surpassing previous years. Capstone expects deal activity to remain strong throughout 2022 as this marketplace remains fragmented in nature, presenting consolidation opportunities. Acquirers are expected to continue pursuing targets to enhance scale and geographic reach and more private equity (PE) firms are expected to invest in this space as they look to build new sector platforms. Companies will also continue to utilize M&A to become one-stop-shops for their clients, adding services across the HVACR and Mechanical, Electrical, Plumbing, and Fire (MEP/F) spectrum to increase their service mix and recurring revenue.

The report features an exclusive interview with Andru Coren, CEO of Eaglestone, discussing sector trends, outlook, and acquisitions. Backed by Aterian Investment Partners, Eaglestone is a New York City-based holding company providing back-office support and a shared services platform to their affiliated companies including The Pace Companies, Delta Sheet Metal, Solar Energy Systems (SES), Energy Conservation & Supply (ECS), PJ Mechanical, and close to a dozen other MEP/F and energy-related companies within the Northeast Corridor. In December 2021, Capstone Partners advised Commonwealth Electrical Technologies (CET) on its sale to Eaglestone.

Also included in this report:

• How HVACR service providers are poised to benefit from elevated demand for energy efficiency and better air quality
• How sector participants are capturing recurring revenue through predictive maintenance and M&A
• Case studies providing summaries of two recent Capstone-advised transactions in the sector