Johnson Controls Bolsters Service

May 26, 2005
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On Oct. 5, 2004, Johnson Controls announced that it acquired Cal-Air Inc., one of the leading mechanical and energy services contractors in California.

Alex Molinaroli, vice president and general manager, Johnson Controls, Controls Group-Americas, said the company is looking to gain an even stronger foothold in the mechanical services market.

Purchasing Cal-Air was just one step in that direction. Johnson Controls' services business was nearly $1 billion for 2004; Molinaroli said he wants the company to double its services business in three to five years.

The move may have raised a few eyebrows, as it did seem different. Why was one of the global leaders in facility management and building control purchasing a contracting firm?

If you ask parties from both sides of the deal, you'll find that this acquisition is just another move designed to strengthen Johnson Controls' ability to service existing customers and attract new customers throughout California.

At the same time, it's another step in the company's attempt to be "your mechanical service company," according to Molinaroli.

"We will continue to make niche acquisitions," he said. "This particular acquisition was our largest [contractor] acquisition." Johnson Controls' goal is simple. "We want to build our service capabilities," said Molinaroli. "Any acquisition we now make, we will do so purely to help our service capability."

Good Timing

Cal-Air was in the market for an outside partner.

"It was just good timing," said Casey Condron, who was president and chief operating officer of Cal-Air. He now is Johnson Controls' regional vice president and general manager-service, West region.

"It was our opportunity to move forward," he said. "We are now able to grow the company. We can offer a bigger bundle of services to our customers. We can provide more services as an entry into the market."

Incorporated in California in 1953, Cal-Air has grown its technical services capabilities in service, installation, and construction. Besides its headquarters office in Whittier (about 12 miles southeast of Los Angeles), the company has 10 regional and branch offices throughout the state.

Approximately 750 employees and 640 vehicles serve customers in various markets, including service, maintenance, repair, and replacement; energy services; and new construction/add-on retrofit.

Johnson Controls called it "one of the top repair and replace mechanical service contractors in the United States."

"This acquisition strengthens our ability to service existing customers and attract new customers throughout California," said John Murphy, vice president-service, Controls Group-Americas. "Cal-Air's management team and employees have an excellent customer service reputation and will be strong additions."

Although the new construction market is Cal-Air's largest business segment, it sees itself moving more into service with Johnson Controls. It expects to upgrade its energy services offerings, too.

"Our customers are seeing a bigger bundle of services, especially with what Johnson Controls has to offer," said Condron.

"We wanted to expand the mechanical services portion of our controls business and now we certainly can." With the marriage, the two companies said they have been able to cut costs and consolidate resources, from marketing to accounting to everything in between.

Employee Opportunities

Cal-Air was an ESOP (Employee Stock Ownership Plan) company. Getting employees to approve the acquisition was not difficult.

"This is all beneficial to them," explained Condron. "This gives an employee the opportunity to move up into other areas here or at Johnson Controls. The glue that holds this [acquisition] together is that the cultural environment of each company is very similar," he said. "Even our mission statements are almost the same."

Condron said it is a win-win situation. Cal-Air is able to give Johnson Controls "thousands and thousands of customers they never had." Cal-Air can get possibly that many more customers by being able to offer "bigger and better bundled services."

Summarized Condron, "We are excited to be with Johnson Controls. Johnson Controls' global resources, combined with our local service delivery, increases both the quality and quantity of services we provide our customers. Together, we will have a full complement of expertise to help California customers run their facilities more efficiently."

Setting Goals

"We have significant goals," Molinaroli said earlier this year. "The marketplace is so large, there are opportunities for all. There is so much deferred maintenance, for instance. This means there is work out there."

Molinaroli estimates the service market's potential at $53 billion. He estimated that even Johnson Controls' impressive services numbers last year were only 3 percent of the market.

"We have no grand illusion to having it all," he said. "I don't want to come off sounding arrogant. The aspiration, however, is to grow the business. "We're not buying in order to be a mechanical contracting company," he continued. "If we do buy, it's to be the premier mechanical services provider in the commercial market. We haven't said it out loud before."

However, "We want people to know what we are doing, so they do not misread what we are doing," he said.

"That's why we are telling everyone about this. We have made this acquisition [Cal-Air], for instance, to help us reach our goal."

Because Johnson Controls has been in the controls business "forever," Molinaroli said the company has a strong, visible name and brand. It's building on that brand by flowing into the mechanical services market.

"In the controls business, we've handled this market [mechanical services] poorly up until now. We need to provide the services customers have always wanted and do it well. That means performance contracting, energy contracting, and outsourcing. We have the scale to do it and do it properly."

He added, "Through market studies, we've found out how we are underserving our market within the services business. Well, we want to serve these customers more successfully. It's about complementing our services."

With Cal-Air in its stable, Johnson Controls will continue to go after more mechanical service business. "We are not going to do a rollup strategy," assured Molinaroli. "We are not going to just purchase contracting firms like it was done in the past. That's not what we are all about. We appreciate these guys [contractors] as our customers.

"We aspire to be the No. 1 channel for systems business," he summarized. "We can grow tremendously. That's our mission."

Publication date: 05/30/2005

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