The Next HVAC Battleground: Owning the Contractor Lifecycle

It’s already happening in Europe. Manufacturers owning contractors as part of their data center strategy.

Recently I was “trolling” LinkedIn and ran across an article from Carl Fredrik Sverdrup, a Zurich-based partner in an investment firm. His LinkedIn article focused on Mitsubishi Electric’s recent announcement of the acquisition of two groups to strengthen its installation and maintenance capabilities to serve Europe’s growing data center market.

You ask, “what does a European acquisition have to do with the US market?”

Maybe nothing, but maybe a precursor of a future manufacturer strategy, albeit a few years in the future.

A couple of ways to think about this.

1. The data center market is a “different” market.

There are product categories that are primarily purchased directly by EPCs, GCs, contractors and even owners. Some of this is due to the size of the order and/or the need to place orders because of backlogs. Another reason is the need for the manufacturer and the developer, or the chip companies, to work together in the area of product development / product coordination. Frankly, distributors do not add value at this stage.

So, if a manufacturer is selling direct, it may make sense for them to offer installation services and specially train installers. And if they are installing, it is natural that they offer a services / maintenance offering to generate future revenues from that facility … especially since equipment will need to be maintained, upgraded and, given AI and sensors, there will be a monitoring opportunity for much equipment.

The broader HVAC market, albeit driven by the residential and commercial markets, already demonstrates the value of this model. Approximately 70% of Watsco’s revenue comes from replacement and repair, providing a less cyclical revenue stream than new construction.

It is then only a short putt for a manufacturer to think “I have nominal channel share or product category share or I have this new product and I am willing to do DTC (direct to consumer (or DTB, direct to businesses), utilizing eCommerce or Agentic AI, to capture sales.” And, since they are selling direct, perhaps they should offer installation? Or maybe their captive installers only provide warranty services?

Consider, the current data-center construction boom is creating enormous equipment opportunities. Carrier, Trane and other manufacturers are reporting exceptional demand, while distributors are finding opportunities around chillers, air-handling equipment, controls, pumps, valves, piping and increasingly liquid-cooling technologies. We recently noted that data-center cooling orders are up dramatically and that liquid cooling is becoming an increasingly important part of the next generation of facilities.

Could Carrier or Trane consider this strategy?

2. PE-backed Contractor Roll-ups Sell to a Manufacturer?

There are a number of PE firms that are financing contractor roll-ups. Some are focused on the HVAC market; some are pursuing the entire MEP space. The question becomes, what is their exit strategy?

Could they be acquiring to:

• Sell to another PE firm?
• Seek a public market divestiture?
• Sell to a larger contractor entity, a la Quanta Services?
• Sell to a large distributor who operates the business as a separate brand?
• Sell to a manufacturer, especially someone where there is already strong alignment based upon the contractor businesses equipment preference and marketing alignment?

While this won’t occur soon, think 3,5,10 years down the line. Distribution will look different due to distributor consolidation. Who is SRS / Home Depot’s next targets? Other PE firm’s targets? And remember, independent owners are not getting younger so, if they do not have an announced succession / exit plan in the next few years, the end result will result in a sale … to someone.

Don’t think a distributor might consider this? Ferguson has identified liquid cooling as an important area of its data-center strategy and then doubled down with their recent acquisition of FloWorks.

The HVAC Distributor Lesson

The opportunity is not simply “sell more HVAC equipment.”

It is:

Win the project. Capture the installed base. Support the contractor. Build the service relationship. Own the replacement opportunity. (And maybe this is where offering a white label / private label solution such as Construct CRM to your contractors comes into play to tighten relationships or thinking about an Agentic AI strategy.)

Another tool that distributors should consider is a performance-based loyalty / incentive strategy to secure significant aspects of the business that rewards support but also offers value-added benefits.

That is a much more durable strategy.

Sverdrup has written extensively about the fragmented nature of HVAC and ventilation markets and the importance of scale, specialization and service within the industry. His data-center observation adds another dimension: as HVAC becomes increasingly mission-critical, the value of the channel may shift from moving boxes to managing the lifecycle of increasingly sophisticated systems.

For HVACR distributors, that may ultimately be the bigger opportunity.