HVAC Industry Consolidation: What’s Behind the Current HOT M&A Trend?

In the ever-evolving landscape of the Heating, Ventilation, and Air Conditioning (HVAC) industry, a significant surge in mergers and acquisitions (M&A) activity is turning up the temperature. Understanding these shifts is crucial for strategic planning and maintaining a competitive edge. This blog will address some of the recent developments, what’s behind them, and what they mean for the larger industry.

The Big Picture: HVAC Market Growth

Before we explore the M&A trends, it's essential to understand the context. The global HVAC market is experiencing robust growth, with our latest analysis at The Freedonia Group indicating:

• Current global market size in 2023: $136 billion

• Projected global growth from 2023 to 2027: 5% per year (CAGR)

The market for HVAC equipment varies considerably from region to region, as the level of a nation’s economic development, standard of living, and climate determine the type and value of equipment in use. Globally, growth is fueled by several factors:

• rising unit sales due to ongoing replacement demand in mature markets and greater uptake of cooling systems in developing HVAC markets

• climate change driving more intense heat in more places and boosting the need for cooling systems

• increasing demand for higher value energy-efficient HVAC systems, including more efficient versions

• growing awareness of environmental issues, resulting in more regulations and subsidies for installing more energy efficient HVAC equipment, as well as increasing innovation in these areas

• growing awareness of indoor air quality and how HVAC equipment can be used with air treatment systems to optimize comfort and wellbeing

Within this environment, industry players are making strategic moves to optimize their operations, by either expanding their operation or trimming down to concentrate on a key area.

Recent M&A Moves Shaking Up the Industry

Two recent transactions have caught our attention:

1. Bosch In July 2024, Bosch acquired the residential and light commercial HVAC business from Johnson Controls, including all of the Johnson Controls-Hitachi Air Conditioning joint venture (both Johnson Controls’ and Hitachi’s shares). This more than $8 billion acquisition is expected to nearly double the size of Bosch’s Home Comfort business, boosting Bosch's position in the global HVAC market, particularly in the key Asian and US regions. Key products include those aiming at greater operating efficiency and modern refrigeration technologies. Johnson Controls seeks to slim down to concentrate on growth in building solutions for commercial buildings, including key markets such as data centers.

2. Rheem Rheem Manufacturing Company announced plans to acquire Nortek Global HVAC. This move is set to expand Rheem's product portfolio and strengthen its position in both residential and commercial HVAC markets.

This is in addition to Carrier’s moves in late 2023 and early 2024 as the company worked to divest its fire and security and commercial refrigeration business in order concentrate on core operations in HVAC. Carrier – one of the top 5 global HVAC equipment suppliers in 2022 – also added to those core operations. The company’s latest moves include:

1. Selling its Global Access Solutions unit to Honeywell in December 2023

2. Selling its industrial fire business to Sentinel Capital Partners in March 2024

3. Selling its commercial and residential fire business to an affiliate of private equity firm Lone Star Funds in August 2024

4. Buying Viessmann Climate Solutions in January 2024

What's Driving This M&A Heat Wave?

There are several key factors behind the current M&A trend:

1. Scale and Efficiency: Larger companies are acquiring smaller or specialized firms to achieve economies of scale and expand their market reach.

2. Tech Integration/Innovation: The race to incorporate advanced technologies like IoT, energy-efficient solutions, and modern refrigeration innovations is driving acquisitions.

3. Geographic Expansion: M&A is being used as a strategy to enter new markets or strengthen presence in high-growth regions.

4. Product Diversification: Companies are broadening their product portfolios through acquisitions to offer more comprehensive solutions.

5. Regulatory Compliance: The need to meet stringent environmental regulations and growing consumer demand for energy-efficient solutions is influencing M&A decisions.

What This Means for Your Business

These trends present both challenges and opportunities:

1. Competitive Landscape Shift: The consolidation of major players could reshape market dynamics, forcing more companies to reassess their competitive position and strategy.

2. Innovation Imperative: With new technologies consolidating into the hands of dedicated players, staying innovative is more important than ever.

3. Partnership Opportunities: For smaller or specialized firms, this trend might open up new partnership or acquisition opportunities with suppliers and service providers looking to expand their capabilities.

4. Market Expansion: The focus on geographic expansion through M&A highlights the importance of considering new markets for your own growth strategy.

5. Sustainability Focus: The emphasis on energy-efficient solutions in recent acquisitions underscores the need to prioritize sustainability in your product development and marketing efforts.

The Bottom Line

The HVAC industry has been busy in the M&A area, but the deals are getting bigger this year. Freedonia analysts are always watching for competitive changes that could impact the competitive landscape and potential investments in additional research and development or expansions in manufacturing and/or service capacity.

For more information, see Freedonia’s benchmark report Global HVAC Equipment and related reports such as Global Commercial Refrigeration, Global Insulation, and Global Filters.

About the blogger:

Jennifer Mapes-Christ is the Manager of Consumer & Commercial Goods for Freedonia Industry Studies and Food & Beverage Research for Packaged Facts.