US HVAC M&A Industry Update – Summer 2025

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Amid overall macroeconomic uncertainty, turbulence in trade policies and rapid technology transformation, M&A deal flow in the Heating, Ventilation and Air Conditioning (HVAC) sector has remained robust year-to-date reflecting persistent investor appetite for accretive acquisitions and platform creations. Service-oriented HVAC market players, especially those offering recurring/preventative maintenance or retrofitting, have been at the forefront of M&A activity.

At a high level, the following investment theses have continued to bolster robust levels of capital deployment for M&A by both public and private strategic acquirers as well as financial investors across the HVAC sector:

1. Steady growth in demand for HVAC services and energy-efficient, climate-conscious solutions has been driven by the essential need to maintain, repair and replace a massive installed base of mission-critical yet aging residential, commercial and industrial HVAC systems with finite lifespans (largely non-discretionary spend).
   
   
2. Industry fragmentation presents attractive value creation opportunities via consolidation, operational improvements and service line/geographic expansion.
   
   
3. Many HVAC businesses require comparatively low capital reinvestment and generate healthy margins and strong free cash flow conversion, making them ideal targets for platform builds by private equity.
   
   
4. Lastly, given the elevated private equity interest in this sector, more business owners have been open to considering exit scenarios and rolling over a portion of their proceeds into the acquiring entity, thus generating additional upside from selling their companies.

Recent U.S. tariff policies have introduced cost pressures for HVAC equipment and component manufacturers who source raw materials and parts from countries like China, Vietnam, Taiwan, Mexico and Japan. While any potential long-term ramifications are yet to transpire, despite the challenges, the HVAC sector’s essential service offerings have helped preserve its attractiveness to investors to date.

Observations on M&A Deal Flow by Key HVAC Segment

Manufacturing – Domestic and international strategic acquirers have traditionally taken the lion’s share of M&A activity in the manufacturing segment seeking to deploy capital to pursue inorganic growth initiatives. Similarly, sponsor-backed acquirers have been eyeing add-on transactions to unlock incremental value in their existing holdings. Overall, valuation multiples have remained steady, especially for those acquisition targets that have a track record of defensible growth and possess differentiated technological capabilities.

Among manufacturers, major public players such as Carrier Global and Modine Manufacturing remain vocal about their desire for synergistic M&A. Carrier Global is looking to allocate part of approximately $10 billion of excess capital toward acquisitions in the bolt-on size. High-priority acquisition targets encompass those offering proprietary product applications, differentiated liquid cooling solutions or aftermarket services. Modine Manufacturing has already completed three add-on acquisitions since the beginning of 2025.

Distribution – The $50+ billion U.S. distribution market remains highly dispersed, encompassing very few competitors with a national footprint (e.g., Ferguson, Watsco, etc.) and over 10,000 small- to medium-sized distributors with a hyper-localized network of branches servicing long-term end users and local/regional contractors. For large strategic players, growth via M&A represents a core part of their strategy as they seek to expand their capabilities, strengthen market leadership and deepen geographic density across the nation. Ferguson, for instance, has completed over 50 acquisitions over the past five years and three during the quarter ended April 2025. Further, in the middle market, the HVAC distribution sector has witnessed a steady flow of M&A activity by private equity investors looking to tap into this recession-resilient end market.

Aside from the target’s revenue and/or EBITDA size, other critical business attributes affect buyer appetite and valuation considerations in the HVAC distribution segment. Market participants have put emphasis on the following aspects:

• Margin Profile – Gross and EBITDA margins above 30% and 15%, respectively, are typically viewed as symptomatic of premium market positioning, entrenched customer relationships, operational efficiencies and best-in-class service capabilities; gross margins of 20-30% and EBITDA margins of 10-15% are considered strong and in line with market dynamics.
  
  
• Customer Base – Stable and tenured relationships with top-tier original equipment manufacturer (OEM) brands create a defensible market position with high switching costs – especially in the presence of exclusive contractual agreements.
  
  
• Geographic Footprint – A robust network of branches and fulfillment centers creates geographic density and potential logistics/operational synergies.
  
  
• Project Volume – A consistent yet growing number of repeat and new projects over an elongated period of time – as opposed to an abrupt spike in project count which is likely to subside – is indicative of the target’s sustainability of earnings going forward. Additionally, significant exposure to repair and remodel activity paves the way for a more recurring flow of business.
  
  
• Price Versus Volume – Growth is not created equal. During their due diligence work, potential acquirers are likely to heavily scrutinize the target’s historical and projected growth trajectory which may reflect an overall (albeit temporary) increase in pricing levels due to inflationary pressures, pick-up in project volume or a combination thereof. The key takeaway is that investors are particularly sensitive to potential risks related to unpredictable, lumpy top-line and cash flow patterns.

Services – On the services front, the broader sentiment is that the residential HVAC services segment is now midway through its consolidation cycle, whereas M&A activity in the commercial HVAC services segment is still in its early stages. Market participants have observed steady deal flow to date with many existing sponsor-backed platforms continuing to execute their roll-up strategies to enhance scale and geographic footprint. Transaction multiples have remained elevated (i.e., north of 10x EBITDA), particularly those paid for high-revenue visibility and high-margin businesses with a large service component. Of particular interest has been the more recent consolidation wave surrounding full-service mechanical and electrical contractors focused on HVAC, plumbing, controls and insulation work and having deep relationships with general contractors and direct customers – both commercial and industrial – across high-density geographic areas.

When gauging potential acquisition candidates in the HVAC services segment, M&A consolidators have consistently adhered to several of the following investment criteria:

• Scale – All else being equal, businesses of scale typically trade at higher valuation multiples, given that their operations are more established and easier to finance – thus, they are seen as less risky. A multitude of middle-market investors in this segment have indicated the $10+ million EBITDA mark as the critical size justifying a significant multiple expansion (assuming the target checks all relevant boxes); evidence suggests that high-quality HVAC services businesses with EBITDA between $0.5 million and $5 million have also traded for healthy multiples.
  
  
• Renovation and Retrofit Versus New Construction – In general, renovation and retrofit jobs are perceived as less risky than new construction activity, given that the latter is closely tied to fluctuating macroeconomic cycles and building activity. Depending on the size of the target, however, exposure to new construction may be more or less tolerated – some market participants have identified a range of 20-30% of revenue stemming from new construction as an acceptable threshold for stand-alone acquisitions; a more select group of market players have transacted on businesses with new construction representing closer to 50% of their revenue.
  
  
• End Market Presence – Service businesses with an established footprint in more resilient end markets like education, health care, pharma, government, water and wastewater treatment, warehouse and data centers are expected to be comparatively more attractive.
  
  
• Project Size and Duration – Smaller (in dollar terms) and shorter projects are usually seen more favorably than larger and multi-annual projects, with the latter carrying an inherent concentration risk associated with cash conversion cycle, human capital allocation and overall project slippage. A business mix of smaller and short-duration projects is much more likely to achieve a stronger valuation.

Select Recent HVAC M&A Transactions

Source: PitchBook and PKF Investment Banking
Note: Dollars in U.S. millions; the list of M&A transactions above relates to the period January-June 2025 only.

Select Public Company Data as of June 30, 2025

Source: CapIQ
Notes: Dollars in U.S. millions; *EV = Enterprise Value; LTM = Last Twelve Months; NMF = Non-Meaningful

Contact Us

The PKF Investment Banking team is available to discuss current M&A dynamics and determine which opportunities may exist for your business. For more information, please contact:

Alberto Sinesi
Director
PKF Investment Banking
asinesi@pkfib.com | 203.273.5024

Robert Murphy
Partner
PKF Investment Banking
rmurphy@pkfib.com | 201.788.6844