Over the past five years, the industrial equipment sector has increasingly turned to software and services to drive growth and secure recurring revenue. Mergers and acquisitions have surged and the development of new business lines focused on digital transformation, automation, and data analytics are rising as industries look to increase their bottom line. The trend is rising across industrial equipment industry, including HVAC, power equipment and other heavy industries — including some of the largest manufacturing companies from around the world.
HVAC Industry
In heating, ventilation, and cooling, the new services category is driven in part by opportunities to cater to the data center industry and its needs for greater energy efficiency as power demand increases.
Johnson Controls’ $870 million acquisition of Silent-Aire in 2021 is a prime example.
By enhancing its data center cooling solutions with advanced software capabilities, Johnson Controls aims to provide more efficient and intelligent systems.
Carrier’s acquisition of NORESCO in 2020 is another example, as Carrier looked to expand its energy efficiency services and smart building solutions. Finally, Trane Technologies’ investment in EcoFactor’s energy management software in 2019 highlights the focus on leveraging data analytics to improve HVAC system performance and energy savings.
Power Equipment
The power equipment sector is also embracing digital transformation.
Schneider Electric’s acquisition of ETAP in 2022 aimed at improving electrical power system simulation software is one standout example. The acquisition enhanced Schneider Electric’s ability to offer comprehensive digital solutions for power management. Additionally, Generac’s acquisition of Enbala in 2020 to boost its virtual power plant and distributed energy management solutions underscores the industry’s shift towards integrating advanced software to optimize energy distribution and management.
In Generac’s case, Enbala was part of an acquisition strategy which saw the company snap up other energy transition technologies including Pika Energy and Neurio Technology in 2019 and 2020. In 2021 the company mentioned no fewer than six more acquisitions — Deep Sea Electronics, Chilicon Power, Apricity, Off Grid Energy, Tank Utility, and ecobee.
In 2021, the resulting revenue from the company’s new-ish energy services business stood at $500 million. Now, its energy services business has outpaced that in the first half of 2024 alone and is on track to pass $1 billion in revenue.
These M&A deals are happening at a steady clip and across the entire manufacturing world. Take Honeywell’s acquisition of Performix in 2020 aimed at enhancing its manufacturing execution systems (MES) capabilities, providing real-time analytics and process optimization for manufacturing operations. Additionally, Emerson Electric’s acquisition of OSI Inc. in 2021 to expand its industrial software portfolio highlights the trend towards integrating software solutions to enhance operational efficiency and productivity.
The strategic shift towards software and services among industrial equipment manufacturers is reshaping the industry landscape. Through targeted acquisitions and partnerships, companies are enhancing their digital capabilities, driving growth, and securing recurring revenue streams. As this trend continues, the integration of advanced software and services will play a pivotal role in the future of industrial equipment manufacturing, offering new opportunities for innovation and competitive advantage.
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