Intermediate Capital Group’s North American PE team has closed its first investment, acquiring Gil-Bar Industries, a large custom HVAC solution provider serving builders in the northeast.
Gil-bar generated $175 million in revenue last year working alongside construction managers and architects on building projects, sources told PE Hub. The deal, which closed in April, included debt alongside almost $100 million in equity deployed from ICG’s balance sheet, they said. ICG’s typical check size is between $50 million to $150 million.
“We had the opportunity to meet the management last summer at a conference before they engaged the sell side banker,” said managing director Uzair Dossani, who joined the firm last February from Harvest Partners.
The HVAC design engineering company hired Baird to run a limited auction process, which kicked off in fall of last year. With diligence taking place during the heart of covid-19, the senior team at ICG met with Gil-Bar at outdoor cafes and restaurants.
“We had already built a close relationship with the team [pre-process],” Dossani said. Soon after, a letter of intent was signed in mid-December and a deal was inked late March.
“We were perceived to be differentiated… they selected us to be partners despite [ICG] not being of highest value,” Dossani said, referring to the bid. The mid-market focused firm bought a majority share in the business, which was a little over 50 percent.
Founded in 1986, Gil-Bar takes on projects in the New York, New Jersey and Pennsylvania areas. The company generates revenue by designing, installing and servicing custom HVAC solutions for buildings. In addition, it sells marked up HVAC system components and equipment sourced from long-known manufacturers.
Not only is Gil-bar ICG’s debut deal, it is the first time a PE firm has backed a business in this subsector, according to Dossani.
Unlike other PE-backed HVAC platforms, Gil-Bar isn’t a pure-play service business; it is focused on design engineering and sourcing – a business model more technical and complex, Dossani said.
As an example, Morgan Stanley Capital Partners recently backed Sila Heating & Air Conditioning – a collection of seven HVAC service providers focused on residential services. In 2019, Alpine Investors launched Apex Service Partners, a group of local HVAC, plumbing, electrical services companies.
That said, much like these PE firms, ICG will embark on a consolidation strategy. “We are looking to expand within the northeast,” Dossani said.
Gil-Bar marked its first acquisition with GBS limited last year, expanding its footprint into the North and Central New Jersey regions.
Along with M&A, ICG sees an opportunity to capitalize on market trends around healthcare and life sciences, which have “pretty technical [HVAC] requirements,” said Evan Eason, also a managing director at the firm, appointed at the same time as Dossani and Kevin Gregory.
In the past, Gil-Bar was involved with projects where it converted a building of another use into a life sciences lab. Hospitals can utilize Gil-Bar’s expertise in upgrading their systems for reasons around patient care, Eason said.
Moreover, amid covid last year, Gil-Bar performed well in the healthcare and educational institution space, Dossani said, although the turnover for office space was slow.
Delineating other goals, Eason said, ICG will help the company sell other HVAC components and improve its ERP and IT systems. In addition, Gil-Bar is positioning itself to capture the next wave of growth stemming from New York’s focus on energy efficient buildings.
“Building owners would need to [upgrade buildings] to make buildings more efficient; manufacturers are working on innovations to improve efficiency and Gil-Bar would work with the engineers,” Eason said.
Looking ahead, the UK-listed PE firm plans to continue looking at family and founder-controlled businesses. “Most of us what we do will look like middle-market business with possible build up opportunities,” said senior managing director Alan (AJ) Jones, who was asked to join the firm at the very end of 2019. “Because we are focusing on partnering [and not buyouts] it takes a little bit of time facilitating those relationships.”
Correction: An earlier version of this report misspelled Kevin Gregory’s name. Also, a quote from Evan Eason was adjusted for clarity. The report has been updated.