HVAC Services Market Update – October 2024

HVAC Services Market Players Place Emphasis on Talent as Demand Rises

Capstone’s latest Heating, Ventilation, and Air Conditioning (HVAC) Services Sector Update reports that a surge in demand for HVAC services has been propelled by increased construction activity, stricter environmental regulations, and a growing focus on energy efficiency and smart building systems.

HVAC Services merger and acquisition (M&A) volume has risen 6.9% year-over-year (YOY) to 124 deals announced or completed year to date (YTD). Transaction inventory in 2024 has remained robust in the space, characterized by low barriers to entry as HVAC Services players roll up competitors to bolster workforces across the U.S. Strategic buyers have retaken the lion’s share (62.9%) of deals—a trend not seen since 2020. Private strategic deal volume has grown 32.5% YOY to comprise 46% of transactions. Meanwhile, public strategic deal volume has risen 250% YOY to 21 deals to-date. Private equity add-on acquisitions have fallen 38.9% YOY as many sponsors have continued to transact at a slower pace, opting to grow portfolios organically. Platform acquisitions have remained flat as private equity firms prepare to deploy dry powder and utilize debt financing amid a more favorable borrowing environment.

Increased construction activity, stricter environmental regulations, and the current corporate interest in energy efficiency and smart building systems has propelled demand for HVAC services and technicians. The Federal Reserve’s September 50 basis point interest rate cut is expected to lower borrowing costs and spur additional real estate investment and construction activity. Heightened demand has pushed companies to prioritize recruitment efforts, offer incentives, and invest in apprenticeship programs to train the next generation of HVAC technicians. Smaller businesses have found it challenging to compete with larger firms that can offer more attractive compensation packages, adding to the overall competition in the space and ripening of the M&A market. As the HVAC Services market evolves, the competition for talent is likely to intensify, with companies that invest in technician development and career advancement standing to benefit the most.

Services sector participants have increasingly sought talent acquisitions of highly-skilled technicians capable of installing, maintaining, and repairing more modern, complex HVAC systems. The sector continues to face a shortage of qualified workers amid an aging workforce and an insufficient number of entrants. This shortage has led to a fiercely competitive labor environment where companies are not only vying for new talent but are also striving to retain their experienced technicians with higher salaries, benefits, and career development opportunities.

Private equity has maintained its affinity for the HVAC Services sector due to its resilience, recurring revenue streams, and strong growth potential. HVAC services—ranging from installation and maintenance to repair—have remained essential to both Residential and Commercial end markets, driving steady demand even during economic downturns. As buildings age and new energy-efficient technologies emerge alongside regulations and incentives to cultivate rapid adoption, customers are expected to require upgrades, repairs, and replacements for their HVAC systems, ensuring a reliable flow of business.

As recently noted in a Wall Street Journal article, “A decade ago, nine out of 10 small-business owners in the skilled trades looking for a buyout wanted to retire and be done. These days, a growing number of them don’t want to ride off into the sunset. Around a third are entrepreneurs who want to stay with the company and find ways to grow. They see what they can do on their own is a fraction of what they could if they had somebody behind them, saying, ‘I’ll help you buy these guys and those guys.’ Next thing you know, you’re running an empire,” said Capstone Managing Director Ted Polk, the lead contributor in the newly released report.

Also included in this report:

• What factors have contributed to a shortage of qualified technicians in the Services space.
• How private equity firms have driven up wages for technicians and the developing M&A landscape.
• A breakdown of recent transactions and analysis on M&A appetite among active buyers, especially a robust cohort of private equity firms.

Capstone Partners’ Industrial Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Industrials industries. Our team partners with leading mid-to-large sized business in the HVAC space that serve growing end-markets. For more information on HVAC Services market trends featured in this report or to speak with one of our Industrial Investment Banking Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.