Last month there were two intriguing acquisitions announced in the HVACR industry.
Acuity Acquires KE2
The first was Acuity Brands’ acquisition of KE2 Therm Solutions.
For those who don’t know, Acuity Brands is the largest US lighting manufacturer. They have two divisions. One is devoted to lighting fixtures and primarily goes to market via electrical / lighting distributors. The other division is Distech Controls, which offers sophisticated building management and lighting control systems for the commercial market. Distech goes to market via integrators and a unique network of channel partners.
KE2 Therm Solutions, which goes to market via HVAC distributors, develops and provides intelligent refrigeration control solutions that improve profitability by increasing system efficiency and decreasing operational and service costs.
From a Distech viewpoint it is an opportunity to extend the capabilities of its offering, hence broadening its prospect base.
Today Distech is about a $200-250 million division of Acuity with aspirations to be a high margin growth driver for the business. It’s the epitome of what Acuity wants to be … a technology company.
The acquisition is interesting as …
- Does Distech continue to keep the KE2 sales channel to sell KE2? Do KE2 distributors also represent a lead source for Distech?
- Or will Distech change the go to market strategy?
- And, if Distech gets more experience with KE2 distributors, could it expand its go-to-market approach and embrace other distributors as a means of accelerating interest in, and demand for, its offering?
- Does KE2 represent a prototype of potential acquisitions for Distech in the sense of other technology applications that can be integrated / controlled by its platform?
While KE2 Therm appears to be a small, niche company, its uniqueness can represent an opportunity for Acuity to pursue new applications for Distech Controls.
Shearer Supply Acquired by Private Equity
Private equity continues to be interested in investing in the HVAC sector.
Last month, Investcorp announced a “major investment” in Shearer Supply, a 22 branch Gulf Coast distributors.
According to the press release, Shearer ownership will now consist of:
- Investcorp, with a majority investment
- Shearer’s management team
- The Shearer family
- PNC Riverarch Capital, which was an existing investor into the business.
Some key terms from the press release in a statement from Investcorp include
- “operates in a large, resilient and highly fragmented market driven by non-discretionary replacement demand”
- “to drive growth and further expansion”
- “founder-led business looking to scale their business”
According to individuals involved in private equity we’ve spoken with, PE likes distribution as it is an “asset lite” business that is highly fragmented. As Investcorp notes, the HVAC market benefits from being non-discretionary. Further, PE firms have capital and, with market uncertainty they feel that distribution is “ripe” for investment with the right teams.
A number of private equity firms have investments in the HVAC industry. Consider:
- Republic Companies recently received an investment from Graycliff Partners
- RSC was acquired by Novacorp backed The Master Group
- Munch’s Supply is owned by Marcone which is Genstar Capital investment
- And Munch’s previously had an investment from Ridgemont Equity.
And speaking of private equity, CID Capital recently invested into Wiseway Supply, an electrical / plumbing distributor.
There are other examples of PE firms being invested into distribution, however, there seems to be heightened interest into the HVAC segment and Investcorp’s comments illustrate the “why.”
Seeking a private equity investor isn’t for everyone as it takes the right management team, with the right vision, that has good financials and has positioned itself for growth. Further, the family / ownership team needs to be willing to take a minority position in exchange for the investment.
Two acquisitions. Different strategies.