Similar to several years ago, 2024 was a busy year for HVAC manufacturing mergers, acquisitions and acquisitions in the HVAC contracting segment. According to a report from Capstone Partners, HVAC equipment deals increased 41.7% year-over-year.
The M&A list in 2024 reads like a who's who of HVAC stars:
Experts agree that while there are many factors driving this trend, it is a good thing for HVAC technology and a sign of its strength.
“It’s great to see the activity; You can feel the energy and buzz in this industry right now,” said Kate Wessels, vice president of marketing, communications and partnerships at ACCA. “The regulatory landscape in particular has put pressure on manufacturers to respond and adapt fully, particularly after the pandemic years of supply chain disruption. Innovation and technological advancement were also important factors in assessing the competitive situation in the market.”
Here are four reasons why this is happening and what HVAC contractors can expect during this part of the business cycle.
1/ Manufacturers buy innovations.
“First and foremost, the cost of innovation is extremely high and extremely risky in terms of actually delivering a long-term profit,” said Zachary Perge, vice president of sales strategies at HARDI. “This is believed to be a much quicker and more cost-effective route than trying to innovate and grow organically within the company.”
When choosing a company to acquire, it's not always about the company itself – sometimes it's about acquiring its technical capabilities. In his previous experience as an M&A advisor, Perge worked on an acquisition for a semiconductor company. Company A wasn't necessarily excited about Company B, and it wasn't about their books or their prospects; This was because Company B had a really strong R&D and engineering department.
“We wanted their engineers and our engineers to work together,” he said. “That human capital aspect, I think, is certainly important in our industry because at the end of the day, in many ways, we are still a technology industry.”
Admittedly, there is a certain pendulum effect. Sometimes internal innovation is seen as the better option, and sometimes the business community prefers to buy a known quantity. For now, Perge said, “We're certainly seeing the pendulum swinging toward more established 'sure things' and reducing the innovation pipeline.”
Jeff Stagnoli, business coach at Nexstar Network, has been in the industry for 33 years and specializes in M&A, and he's seen it before – for example, when Daikin bought Goodman in the 2000s.
“They've done a really good job of acquiring brands that were considered more economy brands, and they've made some improvements, particularly in the quality control they've put in place, as well as the marketing and product support and benefits Contractor.” the homeowner through warranties, things like that. … And they renamed the equipment, and that gave them an opportunity to break into an industry that they wanted to be a part of.”
Bosch's purchase of JCI's HVAC business appears to be one such example, he said.
“Bosch has made a big effort to break into the residential market, and with this acquisition they will immediately have a really strong foothold in the United States,” he said. “And I think what they're going to do is exactly what we've seen with some of these other brands. They'll probably up their game a bit, take some of their marketing know-how and integrate it. We'll see if they keep the York name or not… [they may see] a higher adoption rate by a different name, as Bosch seems to represent a kind of high-end brand in my opinion.”
“My eye is on Bosch in 2025 and 2026,” added Sam Snyder, research analyst at Northcoast Research. “They want market share. Will they endure it and how is a crucial question I will be asking in the near future.”
2/ There could be a risk of tariffs.
If innovation capabilities are one reason to buy, manufacturing capabilities are certainly another – particularly U.S. manufacturing. Trump has promised tariffs on imports from China, Mexico and Canada, and while economists have no consensus on whether that will actually happen, some companies aren't waiting to find out.
“Putting these tariffs on Chinese steel is a big, big part of this,” Perge said. “It could really change the face of M&A.”
Onshoring was already a trend as COVID-19 supply chain issues highlighted the limitations of a global sourcing platform.
“If we can shorten that window by focusing things more on the domestic market, I think that will be seen as very, very attractive to a lot of OEMs and suppliers in the HVAC industry,” Perge said. “So I think being able to produce in America puts you in an advantageous position, regardless of the results.”
3/ There could be a tendency towards specialization.
Nexstar's Stagnoli said he's seeing a trend where brands are starting to specialize more — for example, by focusing on either commercial or residential real estate, but not necessarily trying to be the best in both areas. He attributes this to the economic forecasts he has seen recently.
“Our economists have told us that the first half of 2025 will be a bit like 2024. “It wasn’t bad, but it wasn’t a big breakout year for our industry,” he explained. “We think the first half of '25 is going to be very similar to '24, and then… we think the second half of '25 is going to be really strong, and then all of '26, '27, '28 It's going to be some great years of growth.
“I can only imagine that some of these global organizations will agree to this and just focus on their core business [in] a bit of preparation for the next few years,” he continued. “[Companies] are rationalized. They try to focus on what they do best. They focus on what's important so that when things go south, they'll be very, very good in certain areas and as a result will be very profitable in certain areas. I try to provide a solution for all aspects of the industry – and somehow a specific one To conquer part of the industry because I am a specialist.”
That would explain why JCI sold residential properties in York, he said.
“So that they can concentrate on their core business, namely the commercial offer.”
4/ Everyone is getting on the electrification train.
In the U.S., heat pumps outsold gas furnaces for the third year in a row this year. There's no question: the transition to electric power is well underway and manufacturers are taking steps to gain a foothold.
“I think a lot of it is because they're trying to do the best in a changing market,” Stagnoli said. Carrier's acquisition of Veissmann, a heat pump maker in Europe, and Bosch's purchase of JCI's residential segment to penetrate the U.S. market, “particularly the heat pump offering,” he said, are prime examples.
“I think a lot of it is to chase the heat pump market and I wonder what the next big improvement there will be because I suspect we'll be really, really pushing for heavy electrification of the entire grid.” “If As we move away from fossil fuels, I have to imagine we will see the introduction of some new or advanced technology,” he said. “And I think that’s why some of these people are doubling down. They know they need to gain a little more market share in order to have the R&D dollars needed for the next big improvement.”
Snyder agreed, pointing to both Carrier/Veissmann and Bosch/York.
“Ultimately, every company wants to expand its market share – if you don’t go on the offensive, it’s hard to win in heating, ventilation and air conditioning technology for private households and small commercial businesses.”
Will it continue?
Experts from HARDI and Nexstar both say yes.
“Right now, private equity is sitting on the tenuousest power it has had since its inception,” Perge said. “The 25 largest PE firms all have more cash than ever before” – $555 billion in unrestricted capital, to be exact. Interest rates aren't as low as they were during the last HVAC M&A shopping spree, but “when you have that much dry powder, you don't necessarily have to tap into it.”
Meanwhile, while it remains to be seen how much deregulation the Trump administration will bring, “there certainly won't be any further regulation,” Perge said. “And if you recognize the potential for M&A activity by extremely large suppliers, I don’t think the government will necessarily restrict that.”
As for the impact on HVAC contractors, Stagnoli sees “only benefits.”
“You'll see brand improvements… because from what I've seen in the past, no one makes an investment without the intention of making money from it, right?”
Those improvements could come with price increases, Snyder said.
“Any time a supplier consolidates, you can expect their ability to raise prices and negotiate (for the supplier) to improve,” he said.
Stagnoli's only precaution was to stay current and not get carried away by the excitement and completely commit to a brand from the start.
“There is always a learning curve that comes with it, and that learning curve comes with a cost,” he said. “I don't want people to say, 'Oh, we're selling this brand of the week.' I don’t want them to do that because there are soft costs associated with it that we often don’t take into account.”