Industry Description
The heating and air conditioning wholesaling industry in the U.S. comprises the procurement, distribution, and sale of heating, ventilation, and air conditioning equipment, excluding in-room and in-window air conditioners as well as hydronic systems (NAICS 42373). While installation services are not part of this industry, wholesalers do offer minor repair and maintenance services, which contribute a small fraction of the industry’s overall revenue.
The following are some basic characteristics of the heating & air conditioning wholesaling industry:
- Heating & air conditioning wholesaling industry has a combined revenue of $46.0 billion, with a growth rate of 1.1% in 2019-2024
- There are approximately 3,300 businesses as of 2019
- The heating & air conditioning wholesaling industry employs approximately 248,600 people
Industry Trends
The heating & air conditioning wholesaling industry is highly fragmented and has low levels of market share concentration, with the top four industry operators comprising approximately 18% of industry revenue in 2019. The largest players have numerous locations across the U.S., while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) housing starts, (ii) environmental regulations, and (iii) technological advancements. Each of these is described in further detail below.
The high number of housing starts increases industry demands. High rates of housing starts stood at 1,238,000 units in July 2024. Even though these numbers fell short of the projected numbers by 6.8%, the performance was still encouraging. Most newly constructed residential buildings need heating or air conditioning equipment, and this provides industry demand. Industry performance is closely tied to construction, particularly new residential and commercial buildings, due to this need.
New environmental regulations impact the industry. The phase-out of hydrochlorofluorocarbons (HCFCs) by 2030 will increase demand for new systems because existing models will be phased out. Energy-efficient standards set by the Department of Energy encourage the building service contractors to discard the old one and install an energy-efficient one. In highly populated states with hot weather conditions there will be high demand for industry products. Such regulations will lead to a hike in industry product demand.
General technological development of industry products and systems impacts the future of the industry. The innovations in the current market, such as smart thermostats, advanced air filtration, and energy-efficient solutions for heating and cooling, have gained more and more popularity in the market. This had led to a trend toward smart technologies. Smart technologies are both energy efficiency and provide indoor air quality control making living and working spaces more comfortable. This is driving demand for new and innovative industry products and systems.
The heating & air conditioning wholesaling industry in the U.S. is influenced by external elements, such as increasing housing starts, stringent environmental regulations, and continuous technological developments. As the industry continues to be shaped, adjusting to industry changes is required to remain competitive and capitalize on opportunities. Using new technologies, adhering to environmental standards, and corresponding with growth in the building industry means industry growth should continue for the next several years.
Key Performance Metrics
In evaluating the heating & air conditioning wholesaling industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Brand mix
- Fill rate
- Energy efficiency ratio (EER) distribution
- Seasonal energy efficiency ratio (SEER) distribution
- Sales volume
- Warranty claim rate
Industry Organizations & Publications
The following organizations publish useful information:
- Air-Conditioning, Heating, and Refrigeration Institute (AHRI)
- American Supply Association (ASA)
- Heating, Air-conditioning & Refrigeration Distributors International (HARDI)
- HVAC News
Guideline Information: Private Purchase Transactions
Most heating & air conditioning wholesaling companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held heating & air conditioning wholesaling companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of heating & air conditioning wholesaling companies:
- Revenue multiples between 0.2 and 0.7 times
- Gross Profit multiples between 0.5 and 1.2 times
- EBITDA multiples between 5.1 and 14.8 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most heating & air conditioning wholesaling companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The largest publicly traded U.S. heating & air conditioning wholesaling companies is:
- Watsco Inc. (WSO) – $484.8 million market capitalization
The Price-to-Earnings (P/E) ratio of this company is 37.2 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Heating & air conditioning wholesaling companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.