The decision to stand pat and become a strong independent business or expand through acquisition, and work from a strength in numbers position, has always been an intriguing aspect of the HVACR industry. The contracting trade saw a flurry of consolidation in the late 1990s and early 2000s, which shed new light on the impact of the independent versus consolidation issue.
Since that time, the dust has settled and while there continues to be a good deal of acquisitions and roll-ups in the contracting trade, the pace has slowed down.
The HVACR distribution trade did not experience that same consolidation push, but it has experienced a number of headline-grabbing acquisitions and consolidations, most notably the sale of HD Supply by Home Depot, Watsco’s acquisition of the ACR Group, and Ferguson’s 22 North America acquisitions in 2007.
But while big names make big headlines, does any of this change the ownership landscape in the HVACR distribution trade? Consolidation is a way of life in the HVACR distribution trade - but so is independent ownership. “Consolidation is a fact of life, but that doesn’t mean independent distributors are disappearing,” said Jim Olsztynski, editor ofSupply House Times.
To get a better view of the landscape,The NEWSasked Talbot Gee, vice president of the Heating, Airconditioning & Refrigeration Distributors International (HARDI), for his insights into whether independent ownership is alive and well or if consolidation or dealer acquisition is making a strong push in the HVACR distribution trade.
NEWS:Are there more independently owned HVAC distributorships today than 20 years ago or fewer?
Gee:The HVACR industry as a whole has grown tremendously over the last 20 years, which has included simultaneous growth of independent and corporate distributorships. While there have certainly been many high-profile distributor acquisitions and consolidations that have grabbed the headlines, there has also been steady growth of existing and new distributor firms. HARDI’s membership (including the aggregate of the once-separate memberships of NHRAW and ARWI prior to 2003), for example, has continued to grow over the last 20 years. There are certainly more distributor locations across the United States today, both independently and corporately owned, versus 20 years ago.
What little census data there is shows a steady increase in wholesaling establishments but does not delineate between independents or corporate. Many of the independents that have been consolidated have done so largely as an exit strategy assisted by long periods of relatively inexpensive financing for acquisitions.
NEWS:What is the trend today? Independent or consolidated ownership?
Gee:Consolidated models have certainly grown over the last 20 years and will most likely continue to do so, however, independents that have been committed to training and development have also thrived. There have already been instances of partnerships between independent distributors to save costs and share talent, and we would expect innovative ventures like that to continue. Efforts and functions may continue to consolidate but not necessarily ownerships.
NEWS:Is there one model that has a better chance of weathering a poor economy?
Gee:Regardless of model and consistent with one ofThe NEWS’previous articles on HARDI’s Market Center Distribution model, it is the distributor’s ability to service the unique needs of its local market(s) that will determine its success in any economy. Large consolidations have failed in the past, as have small independents so the focus on service, value, and local market expertise is the key to success whether publicly traded, co-ops, factory owned, or locally owned.
NEWS:What are the strengths of each type of ownership?
Gee:Obviously consolidated firms can achieve economies of scale that enable more robust investments in technology and personnel to compliment leveraged functions, however independents can leverage effectively as well through various affiliations (i.e., buying groups, co-ops) and they can often respond more nimbly to the changing needs of their local markets. Local ownership can often generate strong customer loyalty and a raised presence in the local community whereas larger organizations often bring strong brand awareness and enhanced supplier support.
For more information, visit www.hardinet.org.