While HVACR Contractors are Dealing With Supply Shortages, M&A Transactions Have Surged

Capstone Partners, a middle market investment banking firm, released its latest Heating, Ventilation, Air Conditioning, and Refrigeration Services Update, reporting that sector backlogs have remained robust in year-to-date 2022, supported by healthy construction activity and retrofit and upgrade demand.

While service providers with exposure to new construction must remain vigilant, as continued declines in activity could materialize in fewer installations, retrofit and upgrade demand remains strong as energy efficiency and indoor air quality drive replacements in residential, commercial and industrial markets. In addition, the pandemic has increased awareness surrounding the dearth of quality HVAC systems in schools, presenting a valuable revenue opportunity to sector players.

Amid record demand, production constraints continue to challenge the rate at which manufacturers convert their backlogs. HVACR contractors are actively reassessing their relationships with equipment suppliers as supply shortages and rising costs resonate across the value chain. The sector-wide practice of just-in-time manufacturing has been disrupted by extended lead times and component availability. Contractors must think ahead, aligning their project timelines with readily available equipment. Sector players that effectively prioritize projects and respond to supply chain disruptions are expected to outperform competitors.

In YTD 2022, the number of announced or closed HVACR merger and acquisition transactions has surged. The proliferation of M&A volume in the HVACR services space has occurred despite a backdrop of slowing activity in the broader middle market. Private equity firms continue to display an appetite in the sector due to HVACR service providers’ recurring revenue and defensibility. Strategic buyers have also remained active as private and public companies acquire competitors to build upon their service portfolios and bolster market share.

For more information, visit capstonepartners.com.