The HVAC industry is highly fragmented and has over 75,000 companies in the US alone.
Most HVAC Companies are less than $5M in revenue with the breakout as follows:
Revenue # of Co’s %
$0 to $5M 72,510 97%
$5M to $10M 3,393 1.8%
$10M to $15M 442 0.5%
$15M to $50M 526 0.7%
$50M to $100M 81 0.1%
$100M PLUS 53 0.1%
HVAC Revenue Breakdown
- 59% New Construction/HVAC Installation
- 28% HVAC Maintenance & Repairs
- 7.3% Existing Structures/HVAC Replacements
- 5.7% Refrigeration Systems, Maintenance, & Repairs
HVAC Market Industry Breakdown
- 28.9% Single Family Homes
- 12.5% Other
- 13.3% Healthcare & Institutional Buildings
- 12.6% Educational Buildings
- 10.5% Manufacturing & Industrial
- 10.1% Office Buildings
- 6.1% Apartment Buildings
- 6.0% Retail
Financial metrics in the approximately $5 million plus revenue size companies varies. COGS range from approximately 70% to 86% of revenue yielding gross profit of 14% to 30%. Normalized or recast EBITDA has ranged approximately 9% to 13% of revenue.
Larger companies may have a competitive advantage in winning projects that require both design work and installation, and in serving businesses with facilities in multiple markets.
HVAC energy-efficiency is a key focus.
In the next five years, newer Department of Energy efficiency standards will come into effect by regulating the efficiency of furnaces, air conditioners, and heat pumps. These mandates will primarily affect manufacturers, but requirements for efficiency will also cause an increase in in demand for upgrading old HVAC systems. These new standards can also alter contractors’ bid times and require contractor re-training with more focus in computer technology.
Factors Affecting Value of HVAC Companies
Good reputation– because there are a large number of firms competing for work volume, the most important differentiator between firms is customer satisfaction in the local market.
Service – Having a base of commercial or residential service
customers on service contract or on demand service.
Fabrication and Engineering – Having in house sheet metal fabrication and design and engineering.
Ability to quickly adopt new technology – firms must be able to quickly adapt and integrate energy efficient and smart technology systems.
M&A Activity for HVAC Companies
As the industry becomes more digitalized, the HVAC industry technical requirements will change and require more electronic and digital skills.
Another phenomena effecting the market for HVAC companies is the entrée of energy management companies acquiring HVAC contractors. Energy management companies looking to reduce energy costs to end users are acquiring HVAC companies to provide end to end or identification to implementation solutions- identifying energy savings and then having the ability to “install” the solution by owning an HVAC company.
We have data on 136 closed transactions in the HVAC industry since 2013. Some buyers are acquiring more mechanical contractor type HVAC companies while others are more prone to acquire more service oriented HVAC companies. Furthermore, we’re seeing more Mechanical, Electrical and Plumbing (“MEP”) companies acquiring HVAC companies than ever before. Our existing Buyer List for HVAC companies includes the 136 closed transactions since 2013 plus 484 strategic buyers, plus 55 MEP companies, plus 39 Private Equity Groups that own HVAC companies already.
Our data shows great variety in buyers acquiring HVAC companies. Buyers of HVAC companies have been other HVAC companies, other specialty trade contractors, sprinkler companies, construction companies, energy management companies, MEP companies, and Private Equity Groups.
Many qualitative factors influence value and only taking a company confidentially to market can determine value.