With strengthening economic conditions, access to inexpensive financing, and the leading players’ never-ending desire to grow, it is no surprise to anyone serving the HVAC industry that big-ticket acquisitions continue to hit the newswire with regular frequency. The transaction environment for HVAC equipment and component players remains robust with a number of high-profile deals completed or announced thus far in 2014. Strategic acquirers are aggressively pursuing growth through acquisitions, and the premium prices these buyers have been paying for assets are reflective of their optimism for the sector. Other diversified sector participants are rationalizing their portfolios through divestiture to focus on faster-growing and more profitable segments of the HVAC systems spectrum, or they are electing to exit the sector, given the quickening pace of consolidation. Additionally, ample access to low interest rate financing, coupled with the long-term growth prospects of the sector, has driven significant interest from the private equity community. Industry chatter points to a number of other deals in various stages of the sales process.
With economic conditions continuing to improve, we believe the HVAC sector is in the early stages of a protracted cyclical upswing that will be characterized by stable growth, creating fertile ground for continued consolidation. We see this reflected in the performance of publicly traded HVAC equipment businesses — the shares of which have increased 140 percent since the recovery took hold in 2010.