WATSCO’s latest acquisition appears to be more than just another HVACR bolt on addition. It may open new channels for WATSCO to grow in 2024 and the future both organically and with acquisitions.
Last week one of the largest HVACR distributors Watsco announced it completed its acquisition of Gateway Supply Company, Inc. distributor of plumbing and HVAC products based in Columbia, South Carolina.
WATSCO announced in their news release that Gateway had annual sales of approximately $180 million and serves approximately 4,000 customers from 15 locations primarily in the Carolinas.
Gateway also distributes approximately 40,000 SKUs from more than 600 vendors of which many are probably different than the leading manufacturers they partner with for the core HVACR business they serve today. The WATSCO product breadth may potentially be in expansion mode.
This acquisition has some interesting nuances and possibilities to consider. Gateway does have an established HVAC business, but it has other channel lines that make it interesting to consider if this acquisition may be different.
- WATSCOs major business units – Carrier Enterprise, Baker Distributing, Gemaire, and East Coast Metals all primarily serve the HVACR space today. https://www.watsco.com/business-units/carrierenterprise/
- Gateway has a sizable plumbing business and a kitchen and bath business in addition to HVACR. They serve other contractor types with these businesses than the traditional HVACR contractors that are the dominant customer type for traditional WATSCO business units.
- Ferguson the largest plumbing distributor in North America has been purchasing kitchen and bath, HVACR, and distributors that are not in their traditional Plumbing Channel aggressively for many years. This “Channel drift” and diversification strategy has been a growth strategy for the company that has driven considerable market growth.
- Is WATSCO expanding the channels they serve with their own “Channel Drift” strategy with smart acquisiions?
Watsco has stated that they are actively seeking additional opportunities to “invest and grow through acquisitions.” It might mean that the growth will continue to come from a sound channel drift strategy.
Diversifying their portfolio into new channels with new partners may be a sign of the future.
As always, we would love to get your feedback, so please feel free to comment below or reach out to me directly at john.gunderson@dorngroup.com
