HVAC: Growth Is Heating Up

A vast swath of businesses and consumers rely upon HVAC systems every single day, leading to steady demand for recurring maintenance and non-deferrable repairs. The growing focus on energy efficiency and the rise of cooling-dependent data centers adds incremental demand for upgrades and new system design and installation.

Investors continue to seek out differentiated opportunities to take part in these tailwinds. Across this complex ecosystem of components and services, a host of HVAC companies serving the commercial, industrial, and residential markets provide an entry to this exciting opportunity.

Below, senior professionals from our Industrials Group and Business Services Group discuss the trends powering investor interest in HVAC and how recent client Elgen illustrates the segment’s M&A momentum. 

Essential and Increasingly Relevant

The expansion and aging of HVAC systems is driving a wide range of growth opportunities, with mechanical and electrical components companies offering particularly compelling traits to investors. These components are necessary for HVAC systems across commercial, industrial, and residential infrastructure, from manufacturing facilities and data centers to retail offices and apartment buildings.

“Many product categories are vital to keeping expensive, high-cost-of-failure HVAC systems running efficiently. They’re also increasingly important in meeting complex building regulations and project-specific requirements, as well as evolving government and corporate sustainability initiatives,” says John Arendale, a managing director in the Industrials Group. “Plus, they’re relatively inexpensive products that need to be replaced frequently, which further fuels consistent, repeat demand.”

“Onshoring and nearshoring, electrification, growing investment in outdated infrastructure and technology, and a greater emphasis on environmental factors are driving demand for a wide range of engineered equipment, products, and components, particularly in the commercial HVAC and mechanical and electrical spaces,” adds Tim Webb, a managing director and head of the Industrials Group.

The momentum extends beyond components: HVAC service providers also enjoy nondiscretionary, recurring demand, and many are on investors’ radar. Expansions and updates of existing buildings generate work on outdated HVAC systems to improve energy efficiency and reduce environmental impact. In addition, aging commercial building infrastructure presents significant opportunities for retrofit and replacement projects.

“Many of the same tailwinds impacting HVAC components are also benefiting services companies,” says Brian Lucas, a managing director in our Business Services Group. “Such businesses benefit from a steady need for preventative maintenance, break-fix work, and systems upgrades, while leaders in the category are sharpening their focus on technology improvements that reduce user costs and enhance system efficiency.”

Elgen Manufacturing

Elgen Manufacturing, a designer, manufacturer, and distributor of HVAC ductwork components and structural building products, demonstrates the strong investment potential throughout the HVAC space. The company is differentiated by its broad product portfolio of high-quality, customizable, labor-saving components, its exceptional service, and its short lead times.

Elgen is further set apart by its unique sales strategy, which features direct sales to contractors and strategic distributor partnerships that broaden reach into niche markets. Its flexible manufacturing capabilities support more than 75% of sales derived from in-house production, resulting in continuous innovation to meet diverse customer needs.

As such, Elgen has become a premier partner to both distributors and professional contractors. “Elgen’s innovation and cross-functional manufacturing capabilities allow it to continuously expand into new products, geographies, and markets, while taking share in a fragmented landscape,” says Ty Denoncourt, a managing director in the Industrials Group.

Elgen exemplifies the long-term opportunity to serve multiple attractive, growing end markets and project types, such as repairs, renovations, retrofits, and new construction, says Denoncourt: “The business is poised to continue capitalizing on the HVAC subsector’s strong demand drivers.”

Powerful Potential

Going forward, the long-term onshoring and nearshoring of more manufacturing sites, data centers, battery plants, and other critical facilities will continue to spur demand for businesses spanning the HVAC landscape. Several major trends are propelling the expansion and advancement of these facilities, including the proliferation of AI, the electrification of everything, and greater computing demands. And that’s in addition to the significant underlying demand for ongoing upgrades, maintenance, and repair of existing HVAC systems.

“Companies specializing in HVAC systems, products, components, services, and repair that can tap into diverse demand across end markets will be poised for long-term growth, regardless of the economic environment,” says Arendale. “Throughout the market’s highly fragmented ecosystem, we’re excited to watch many HVAC component and services businesses succeed and draw investor attention.”

To further discuss HVAC M&A opportunities, please contact our senior professionals.