By Haozhe (James) Huang , Friedrich von Storch, Yujia Bao (IE Business School), Athean Myat, Suchrita Patlolla, James Ludlow, May Takagi, and Chris Goranov (Cornell University)
Photo: Robert Linder (Unsplash)
Overview of the deal
Acquirer: Partners Group
Total Transaction Size: USD 2.2bn
Announced date: 16/11/2021
Target advisor: Baird, Barclays
Partners Group has agreed to acquire Diversitech, the largest manufacturer of parts and accessories for heating, ventilation, and air conditioning equipment in the US from Permira, with an implied enterprise value of USD 2.2 billion. The transaction is expected to close in December, and Permira and management will remain minority investors in the company after the transaction.
This acquisition is the second that Partners Group has made this year in the HVAC sector, following the acquisition of Reedy Industries, a leading commercial HVAC service in the US in August.
“We tracked DiversiTech through our thematic investing approach and have conviction in its future growth prospects given the expanding installed base of HVAC equipment and the recurring demand for the Company's essential parts and supplies.” - Andrew Oliver, Managing Director Private Equity Goods and Products at Partners Group
Company Details (Acquirer - Partners Group)
Partners Group, founded in 1996, is a global private equity firm based in Baar, Switzerland. The firm has more than $119 billion in assets under management in private equity, private real estate, private infrastructure, and private debt. Partners Group is listed on the Swiss Exchange and has been part of the Swiss Market Index since 2020.
Founded in 1996, headquartered in Baar, Switzerland
CEO: David Layton
Number of employees: 1,500
Market Cap: CHF 42.95 bn (as of 24/11/2021)
EV: CHF 43.38 B
LTM Revenue: CHF 1.92 B
LTM EBITDA: CHF 1,23 B
LTM EV/Revenue: 22.59x
LTM EV/EBITDA: 35.27x
Company Details (Target – DiversiTech Corp.)
DiversiTech Corp. is the largest manufacturer of equipment pads in North America and a significant supplier of components in several industries such as HVAC, electrical, and automotive retail. DiversiTech offers over 200 product categories to wholesaler partners to streamline the supply chain and create wider product availability. Permira, a global private equity firm, acquired DiversiTech in 2017 and provided over $35 billion in committed capital. Permira will retain an ownership stake in the company after the sale to Partners Group.
Founded in 1971, headquartered in Duluth, Georgia, USA
CEO: Andy Bergdoll
Number of employees: 1,250
LTM Revenue: $250M
LTM EV/Revenue: 8.8x
Projections and Assumptions
Following the transaction, Partners Group will further increase its presence in the HVAC sector, following its first acquisition in the HVAC sector of Reedy Industries, which happened earlier this year in August. Partners Group will expand its current product offering in the HVAC sector and its customer base, as well as its geographic coverage outside the US, leveraging on DiversiTech’s existing networks, which serve over 6,000 customers through a broad product portfolio of c. 30,000 SKUs across six product families, including HVAC equipment mounting, electrical & replacement parts, condensate management and indoor air quality. Likewise, DiversiTech also has 1,250 employees across 20 locations in the US, Canada, and the UK. After the transaction, Partners Group will draw on its extensive experience in the HVAC sector to partner with DiversiTech’s management team to accelerate new product development, expand through M&A and bolster internal manufacturing capabilities.
The acquisition will enable Partners Group to capitalize DiversiTech’s recent M&A activities, including recent acquisitions of eight industry-recognized brands such as hilmor®, Fresh-Aire UV®, and Packard®. Additionally, this acquisition aligns with Partners Group’s approach to thematic investing with conviction. Partners Group can increase its presence in the HVAC sector by leveraging DiversiTech’s supply chain services, account and product management systems, and production capabilities. With the extensive support and expertise of Partners Group, DiversiTech will be able to remain competitive in the market by producing new products and technologies, diversifying their risk by utilizing existing synergies in management and technology. A synergy that will prove to be a key strength in the long-term is DiversiTech’s technology; as market demand increases for innovative technologies in conjunction with products, DiversiTech’s existing portfolio and product evolutions show strong signs of continued growth and competitiveness.
Risks and Uncertainties
Although Diversitech is North America’s largest manufacturer of equipment pads and a leading manufacturer of components for the HVAC industry, future demand growth for products may not be as large as expected. Guidehouse Insights’ report projects the North American HVAC market to reach $75 billion in 2025 from $56B in 2019. This growth represents a CAGR of 5%, which slightly surpasses the expected inflation rate. Regardless of the initiatives Partner Groups implements, it is not guaranteed that the exit price will be larger than the purchase price.
Secondly, the HVAC market is shifting towards implementing smart technology, environmentally friendly products, and reducing energy consumption. Although this trend opens opportunities to develop new parts for production, there is a risk from increasing competition and uncertainty in PartnerGroups’ ability to leverage DiversiTech’s resources and develop the products. Perhaps PartnerGroups would have to increase expenditure on product development and seek new partnerships with software companies to remain competitive, which may increase costs.
“As a result of investments in our team, product lines and infrastructure over the last five years, DiversiTech has a solid foundation and leading position in the North American HVAC parts & accessories market. We look forward to building on our multi-decade history of market-leading organic growth and taking the company to the next level under Partners Group's ownership.” - Andy Bergdoll, CEO at DiversiTech