Spotlight On: Industrial Tech Services - Investor Demand Soars in the Facilities Maintenance and Design & Engineering Sectors

May 2021 — By Nate Shepherd & Erica Richardson


Transaction activity in the Industrial Tech Services space gained momentum in the fourth quarter of 2020 and first quarter of 2021, particularly in these two sectors:  

  1. Facilities maintenance
  2. Design & engineering 

Facilities maintenance and design & engineering investors placed a total of ~$16 billion of capital with 474 transactions completed or announced in the first quarter of 2021 – a significant increase compared to the prior year. We anticipate further acceleration of M&A activity in the remainder of 2021. This note will take a closer look at these two key sectors to highlight specific growth factors that garner robust buyer interest.

Facilities Maintenance | New Tech and Green Initiatives Spark Investor Interest

Rising demand for HVAC, electrical, and plumbing retrofits and replacements in the residential and education markets well-position industry players for growth and innovation. Key drivers of rising demand in the residential sector include a work-from-home induced emphasis on home-improvement spending and a booming housing market.

Additionally, public industry leaders, such as Trane Technologies (“Trane”), cite the education market as a hotspot for facilities maintenance. According to Trane’s COO in a recent earnings call, “The pipeline for our education end market is also strong. To-date, we've engaged with many of our K-12 customers to perform indoor air quality assessments.” As the U.S. returns to in-person work and school, heightened demand for indoor air quality solutions will continue to spur sector growth.

Notably, a fundamental focus on sustainability and efficiency at both the corporate and consumer levels continues to accelerate demand for equipment such as smart meters, sensors, and controls. Both the smart buildings nonresidential market and home energy management are expected to grow as (a) businesses strive to achieve sustainability targets, and, (b) new technology is more widely available to consumers. Additionally, rising investor commitment to ESG practices is a positive sign for the industry.  As corporate, consumer, and, investor commitment to ESG practices soars, opportunities for innovation within the HVAC, electrical, and plumbing space will keep pace.

The highly fragmented roofing, landscaping, and pest control industries also present investors with attractive tech-enabled growth opportunities. Advancements in software, tools, and other platforms encourage improved customer service, sales, supplier network communication, and technical support.

Facilities Maintenance | A Highly Active M&A Landscape

M&A across the facilities maintenance landscape is robust. In the HVAC, electrical, and plumbing subsector, Trivest’s exit of Turnpoint Services was honored as Buyouts’ 2020 Middle-Market Deal of the Year

In just four years, Trivest grew Turnpoint through 18 add-on acquisitions—increasing the employee base from 160 to over 2,000. The resulting sale returned the largest multiple of invested capital in Trivest history.

Forest Wester, a Partner at Trivest, summed up their attraction to the HVAC sector this way: 

“We went into a sector that was not exactly out of favor, but also not highly sought after. That allowed us to be an early mover.”

 

 

Design & Engineering | A Perfect Storm of Converging Drivers

Demand drivers continue to converge in the design, engineering, inspection, and certification space. Key forces include:  

  • Municipal and infrastructure spending
  • Coastal protection initiatives 
  • Regulatory change
  • Green energy initiatives (hydro/solar/wind)

Eyes are on the environmental, civil, structural engineering, and field services space as investors anticipate high demand for critical infrastructure repair and new construction. The American Society of Civil Engineers released its 2021 Report Card for America’s Infrastructure, which gave the U.S. infrastructure an overall grade of C-. “We have not made the investments to maintain infrastructure that in some cases was built more than 50 years ago,” said ASCE Executive Director Tom Smith. 

Notably, ESG initiatives represent a business imperative. Energy is a widely favored end-sector, with demand expected to grow for affordable, reliable, clean energy sources like hydro, solar, and wind. Buyer prospects also expect rising sea levels and a growing need for coastal development solutions to encourage spending on coastal protection initiatives.

Design and Engineering M&A Landscape | High Activity, Quantity, and Quality 

Overall, M&A activity across the sector is high, and deal quality remains reasonable. Common buyer acquisition theses include:

  • Providing a complementary range of design and engineering service offerings
  • Emphasizing accelerated growth by leveraging acquired resources, know-how, IP, and customer bases

 

 

Looking to The Future

Throughout the facilities maintenance and design and engineering sectors, activity levels are elevated as buyers are hungry, and we expect this sentiment to continue for the foreseeable future. Investors seeking growth in these previously under-the-radar sectors now have many specific, converging demand and growth factors working in their favor.

 

DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.