Emerson’s new partnership with international investors is a vote of confidence in the HVACR industry — and its durability and growth potential — at a time of accelerated change, analysts say.

Emerson on October 31 announced plans to sell a majority stake in its Climate Technologies business — the entire HVACR-related portfolio of services and products, including the Copeland compressor brand — to the private equity firm Blackstone. The deal, to be finalized in the coming months, will spin off Climate Technologies as a joint venture, with Emerson to have a non-controlling 45% stake in the new company until a possible sale or initial public offering.

The agreement values Emerson’s Climate Technologies business at $14 billion, and will give Emerson a pre-tax payment up front of about $9.5 billion. A subsidiary of the Abu Dhabi Investment Authority, and the investment firm GIC, which is tied to the government of Singapore, are investing alongside Blackstone.

For Brian Loftus, market research and benchmarking analyst at the contractors group HARDI, the deal is an endorsement of HVACR during a major shift in the infrastructure that supports it.

“Blackstone’s investment in Climate Technology is confirmation that the electrification growth story is real. Blackstone is not a slash-and-dash investor. They see the strategic value and potential of climate technology, as does Emerson,” Loftus said. “The whole industry is going to evolve as the infrastructure changes. Emerson’s going to continue to own a big chunk of it.”

Matt Michel, president of Service Nation Inc. also sees this transaction as an endorsement for the industry.

“This is further confirmation that the financial world has recognized the resilience of the HVAC industry,” said Michel. “While HVAC may lack the ‘wow’ factor of some of the tech flavors of the day, we perform on a steady basis.”

Loftus said he doesn’t expect the HVACR industry to see any immediate changes with the creation of the joint venture. “The Climate Technology portfolio of businesses has been an industry leader and we expect that to continue. I suspect Blackstone also expects that to continue or they would not be investing $9 billion,” he wrote.

“Contractors are more worried about SEER2 than Wall Street,” said Michel. When they follow private equity transactions, he added, contractors are looking at firms that are driving up the valuation multiples of residential contracting businesses, not at companies like Blackstone.

Blackstone spokesman Matthew Anderson said HVACR distributors and contractors should expect Emerson’s Climate Technologies business to continue as usual in the coming months.

“All parties are 100% committed to ensuring a smooth transition,” he said.

In a press release, Emerson president and CEO Lal Karsanbhai, who took over in early 2021, said the spinoff will give Emerson cash to invest in growth and the opportunity to focus on its automation business, while also staying invested in the market potential of Climate Technologies.

“Our differentiated capabilities in intelligent devices and software, and the focus, cohesiveness and operating agility of a pure-play company, will allow Emerson to bring our comprehensive automation products and solutions to a diverse set of end markets,” he said.

Loftus called that a good strategy.

“It is not a mature company downsizing,” he said. “It is an industry leader being fortified to compete and grow in this transformation ahead.”

Michel compared the Emerson-Blackstone deal to Honeywell’s spinoff in 2018 of what became Resideo Technologies Inc.

“Resideo and Emerson are similar as both are suppliers to unitary equipment manufacturers, distributors, contractors, retailers, and consumers,” Michel said. “Both sell broadly across the industry. If any manufacturers in HVAC are going to be profitable, they will be Emerson and Resideo.”

The Emerson press release said the company will be “right-sizing” its cost structure and selling its headquarters to the new joint venture, then leasing back the campus for three years with an option to extend the lease for two more years. During that time, it said, the company will be scouting out potential locations for a new headquarters.

Anderson said the as-yet unnamed joint venture will continue to be based at Emerson’s current campus. Emerson, which has its roots in a company founded in 1890, is based in the St. Louis suburb of Ferguson, Missouri.