HVAC investors eye M&A uptick in 2025

M&A volume among HVAC-focused private equity-backed platforms was down in late 2024, according to a report by investment bank Capstone Partners — but investors see bright spots ahead.   

What’s happening: While it doesn’t capture all of the industry’s transactions, the report counts 90 “private strategic” and “PE add-on” deals through September 6, 2024 (the latest available data), a roughly seven percent decline from the same period in 2023. 

• “Many sponsors have continued to transact at a slower pace, opting to grow portfolios organically,” the report says.

The big picture: In 2024, economic uncertainty loomed leading up to the presidential election, while interest rates hit their highest levels in nearly 20 years, constraining buyers’ borrowing power. 

Yes, but: The landscape has shifted since September, with the Federal Reserve cutting its effective rate three times and the presidential election concluding, boosting confidence among the investor community.  

• North American private equity firms have also accumulated around $300 billion in cash, or “dry powder,” that needs to be invested, per the Wall Street Journal. 

What they’re saying: “I think most factors are pointing to a huge M&A year,” writes Shaun Hardick, CFO of Redwood Services, in an email, referencing falling rates and “pent-up” dry powder.

• “There is a perception on the street that things are ‘pro-business’ and that people may be more willing to transact [this year],” adds Fred Silberstein, CEO of SF&P Advisors, an HVAC-focused advisory firm.

The combination of election uncertainty in the rearview, falling interest rates, and expected gains in existing home sales signals “healthy top and bottom-line growth” within the industry, believes Greg Hicks, a director at investment bank Anchor Peabody.

• “With renewed levels of profit, we’d expect many owners to start taking the necessary steps to take some chips off the table,” he notes, adding this could manifest in many forms, “including smaller and mid-sized companies selling to larger players… as well as larger platforms trading to bigger groups.”

Case in point: Morgan Stanley late last year sold a majority stake in Sila Services to Goldman Sachs’ private equity arm, valuing the company at about $1.7 billion.

• Zoom in: 27 residential-focused HVAC and plumbing platforms either formed or underwent transactions between 2019 and 2021, according to data compiled by Homepros.
• Given investment firms’ typical three to five-year hold period, these companies are approaching a subsequent transaction. 

The intrigue: While sentiment is generally positive, some investors remain cautiously optimistic. 

• “I tend to think [2025] will be slightly better than 2023/2024 because so much uncertainty is behind us,” writes John Cerasuolo, CEO of Leap Partners, in an email. 
• “But that challenging household economics [may hinder] performance,” he adds, referring to high consumer prices across the board. 
• Speaking with Homepros, a representative from another platform, who asked not to be named, expressed a similar view, expecting only a “slight” uptick in deal flow this year.

Between the lines: U.S. investors aren’t sure if the Federal Reserve will continue cutting interest rates amid inflation concerns, potentially fueled by President Trump’s proposed tariffs. 

• “I think it’s going to be an inflation question over the next two years,” Covey Cole, Any Hour Group’s VP of M&A, told Homepros in November. “Inflation has honestly just killed Americans.”

Still: Some large players, in particular, are optimistic. Apex Service Partners, for instance, anticipates a “strong” year ahead, including from an M&A perspective, according to a person familiar with the business.

• “I expect deal count to be similar to 2024, [in which] Q1 saw the highest amount of deal flow in company history,” said another person from one of the industry’s larger platforms, who asked not to be named.

What we’re watching: The Fed’s interest rate decisions, their downstream effect on contractor performance, and any resulting M&A activity. 

• “It does seem like in the last three months, we’ve seen more companies come to market,” Cole added. 
• Capstone Partners will release its next report in August.

Editor’s note: The report’s numbers mentioned at the beginning of this article exclude public company acquisitions and include some commercial acquisitions.