Businesses that participate in the HVAC industry – either as manufactures, distributors, service providers or the firms helping these businesses thrive – experience the positive tailwinds driving their demand every day. Whether lucky or smart – or perhaps a bit of both, these businesses benefit directly from the key themes we will note below. We expect to see more capital flowing into the HVAC market in the years to come for these reasons as well.
Stock Market Performance of HVAC Participants
Like the saying goes, “If I had more time, I would have written you a shorter letter.” The same is true in understanding where a business has been, where it is today and where it is going. We understand there is more than one way to measure a company – you can have an entire glossary of Key Performance Indicators (“KPIs”). But what if you only had one KPI; what would it be? And if you could come up with just one KPI, could you go back and accurately represent that KPI historically? Could you forecast this KPI? Can you predict it?
Secular Tailwinds
Over the last 30 years, the median age of homes in the United States has risen from 27 years to more than 42 years old. In addition, the number of homes has grown by approximately 40 million since 1990. The vast majority of homes today have hvac units – so the number of installed units and the age of the homes continue to grow.
This is one of the strongest tailwind that is expected to drive demand for HVAC installations and replacements for decades to come.
So the millennials have not only sufficiently moved out of their parents’ basements….In a positive secular development, now they are beginning to purchase homes, beginning the ever-important runway of home improvement expenditures.
We are expecting this rate to continue climbing over the next ten years, ultimately landing in the same area that the broader homeownership rate of high 60s%. This will provide a nice boost to repair and remodeling expenditures.
Large, Fragmented Market
There are more than 50,000 firms servicing residential HVAC equipment across the country. The vast majority of these firms have less than 25 employees in their organization. The median size of firm generates low single digit millions of dollars in revenue.
This level of fragmentation creates a massive runway to consolidate a region or metro area, setting the stage for an attractive value creation opportunity for investors. We are seeing this play out in today’s market with more than 50 PE-backed platform investments participating in a long-term consolidation strategy.
We have a long runway of demand growth underpinning the HVAC industry. We are long-term believers in this serving an excellent backdrop for M&A and attractive returns for shareholders in the process. Our team has carved out a niche expertise in this market and we welcome dialogue with business owners and investors alike as this industry continues to benefit from these themes.