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Carrier’s $13.3bn Acquisition of Viessmann Climate Solutions

Updated: Oct 30, 2023

Acquisition Overview

Carrier, a prominent American heating, ventilation, and air conditioning (HVAC), and fire and security provider, has agreed to acquire Viessmann Climate Solutions from the Viessmann Group for €12bn, paid in a combination of cash and equity. Viessmann Climate Solutions, a renowned brand in the European energy transition space, is strategically positioned to capitalise on growing global demand for sustainability and energy independence. This acquisition represents a significant step towards Carrier’s strategic objective of becoming a streamlined, global leader in climate and energy solutions. Although industrial M&A activity more broadly has slowed in 2023, mergers continue to be considered in order to cut costs through economies of scale.

Deal Structure

The acquisition sum of €12bn will be split 80:20 between cash and Carrier common stock, issued to Viessmann Family Holdings. To finance the acquisition, Carrier plans to raise €7bn in debt, supplemented by available cash reserves. Both parties have committed to a series of long-term guarantees, including continued access to manufacturing, and research and development facilities for a period of five years. This was perhaps necessary in order to assuage the concerns of German regulators over reductions to domestic services. Additionally, Max Viessmann, CEO of the Viessmann Group, will join Carrier’s Board of Directors, reflecting the family’s confidence in Carrier’s potential to generate value through this acquisition. The transaction is expected to close by the end of 2023.

JP Morgan Securities LLC, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and Linklaters LLP are advising Carrier, while Viessmann has engaged Goldman Sachs & Co. LLC, Hengeler Mueller, and Davis Polk & Wardwell LLP as its advisors.

Carrier Overview

Carrier Global Corporation (CARR) is a leading provider of HVAC systems, refrigeration, fire and security, and building automation technologies. Committed to sustainability, Carrier places a strong emphasis on delivering energy-efficient solutions in a variety of sectors, catering to both residential and industrial applications. The company distinguishes itself by prioritising product development, aftermarket services, and digital revenue streams. It maintains a lower cost structure, with more leverage, than many of its major competitors, such as Honeywell International.

In a strategic move to streamline its operations and focus on its core strengths, Carrier has announced plans to wind down its fire and security, and commercial refrigeration businesses by the end of 2024. This, it is hoped, will accelerate Carrier’s ambition to become a global leader in climate and energy solutions.

Carrier is overwhelmingly owned by institutions. Vanguard is the single largest shareholder, owning 11.15% of the stock, though multiple Capital Research and Management Co. funds hold a significant amount of equity.

Founded: 1915

Number of employees: 52,000

EV: $41.57bn

LTM Revenue: $21.04bn

LTM EBITDA: $2.88bn

Market Cap: $35.56bn

Viessmann Overview

The Viessmann Group, a distinguished German family-owned company, has built a solid reputation for its expertise in delivering energy-efficient solutions for heating, industrial, and refrigeration systems. Viessmann Climate Solutions constitutes approximately 70% of the company’s business, with a primary focus on providing innovative and efficient heat pumps and associated accessories, including batteries. Traditionally recognised as a prominent Mittelstand company, the backbone of the German economy, news of this acquisition came as a surprise to some, given that these companies are infrequently tied up in large deals.

Founded: 1917

Number of employees: 14,500

LTM Revenue: €4bn

LTM EBITDA: €700mn (estimated)

Industry Insight

COVID-19 had a significant impact on renewable technologies, particularly in the energy sector. Disruptions to global supply chains resulted in project delays, especially for those that relied on turbines and solar panes manufactured in China. Moreover, large companies, like Carrier, faced workforce challenges due to local quarantines, significantly limiting the availability of labour. However, amidst these challenges, recent events have also presented an opportunity in the renewable space. The adoption of energy-efficient technologies and practices can reduce production costs, particularly relevant considering increased energy prices following Russia’s invasion of Ukraine.

M&A activity in the renewable sector was markedly above last year’s remarkable average, accounting for approximately 20% of all deals exceeding $1bn in the industrial sector. Additionally, several private equity firms have launched energy transition funds. Even in 2023’s harsh macroeconomic climate, sustainable companies have found it easier than others to raise capital. Interest in green bonds, and the resulting ‘greenium’ associated with these instruments, makes debt financing an attractive option for acquisitions. Moreover, large industrial companies have shown a preference for acquisitions as a means to enhance their green credentials, as acquiring renewable companies has proven to be more cost-effective than building sustainable practices from the ground up.

Europe has emerged as a frontrunner in renewable activity, although some countries, including Germany, have lagged behind Nordic leaders. The European Union’s Renewable Energy Directive and other related initiatives have significantly boosted the market position of renewable technologies over the past 15 years. The US, meanwhile, has not placed the same emphasis on energy transition. Access to fossil fuels is less of a concern, resulting in a greater focus on mitigating the impacts of combustion, primarily through carbon capture. Chevron, for instance, have established a joint venture with the goal of developing carbon mitigation technologies. For producers like Carrier, then, growth in Europe has been a significant recent focus.

Strategic Rationale

Carrier’s long-term strategy has decisively pivoted towards becoming a global leader in climate and energy solutions. This is driven by a recognition of the potential growth opportunities in a market that has been consistently growing and was boosted by Russia’s invasion of Ukraine which prompted an increased emphasis on energy security, and independence from fossil fuels, in order to safeguard against geopolitical turbulence. In Europe, as mentioned, this trend is more accentuated than anywhere else, largely due to government regulations and incentives. Viessmann, therefore, is very well positioned to capitalise on this situation. Carrier’s CEO, David Gitlin, highlighted Viessmann’s strong brand, while also emphasising their innovative product offerings. Indeed, the addition of Max Viessmann to the Carrier Board of Directors is expected to help maintain this image.

However, the benefits to Carrier go far beyond profit in Europe. Viessmann Climate Solutions offers an extensive range of home renewable solutions which are, at present, limited to Europe. Yet, with the infusion of Carrier’s international strength, these can be scaled globally. This will provide Carrier with an even more differentiated and comprehensive offering than it currently has. Moreover, Viessmann’s technology is expected to be integrated with existing products, improving their energy efficiency and usability.

Further, the addition of Viessmann Climate Solutions serves to streamline Carrier’s business operations. The existing leadership will be maintained, and as a result, Carrier will have established and experienced operations in the most attractive energy transition markets, Europe, East Asia, and the Americas. Essentially, Carrier are trading away their Fire, Security and Refrigeration businesses, which add complexity to their structure, in favour of Viessmann, which can be seamlessly integrated into the business.

Long-Term Prospects

Since its separation from United Technologies in 2020, Carrier has made strides towards its goal of being a nimble, growth focused company. The acquisition of Viessmann Climate Solutions allows the company to expand into Europe’s high growth market without sacrificing this vision. Indeed, Carrier’s operations and products will likely be improved by this acquisition. Despite 2023’s low industrial M&A activity, this deal comes as a welcome surprise, particularly in the German economy, and will hopefully help to accelerate global increases in efficiency. It is worth mentioning that the German government has some concerns about the acquisition, primarily over the degree to which the nation will continue to benefit from Viessmann’s products. That said, neither party seems to be overly worried: David Gitlin has repeatedly reiterated his confidence that the deal will close.

Written by Thomas West (St John’s College)

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