Leonard Green to acquire minority stake in HUB; plus Investcorp, Sound Partners, Odyssey invest in HVAC

PE goes bullish over the HVAC sector.

Good morning dealmakers, thank goodness it’s Friday!

It’s Obey Martin Manayiti here with the newsletter.

To cap off the week, I am looking at seven HVAC deals that have caught PE investors’ attention as hot temperatures beckon.

But first let’s look at deals announced this morning.

Insurance brokerage
This morning, Leonard Green & Partners (LGP), a Los Angeles-based private equity firm has announced plans to take a minority investment in Hub International Limited (HUB), a global insurance brokerage headquartered in Chicago. The deal is expected to close in the third quarter of 2023.

Hellman & Friedman will retain the controlling interest.

LGP is joining Altas Partners, a Toronto-based PE firm that initially invested a substantial minority stake in 2018. Atlas will remain a significant minority shareholder. Both LGP and Atlas will be on HUB’s board.

“We have admired HUB for a long time and are excited to partner with the entire HUB management team, Hellman & Friedman, and Altas to support the next phase of the company’s growth,” said Adam Levyn, partner at LGP. “HUB is the premier insurance broker and has all the attributes we look for in investments – a best-in-class management team, a differentiated culture, a long and consistent track record of success, and multiple ways to grow.”

HUB’s valuation has grown fivefold over the last 10 years, the company said.

The company had a valuation of $4.4 billion and annual revenue of more than $1 billion in 2013 when Hellman & Friedman (H&F) initially invested in it. “In 2018, just 4.5 years later, HUB’s revenue exceeded $2 billion, and its valuation had grown to $10 billion in connection with Altas Partners’ substantial minority investment in the company. In 2022, HUB hit $3.7 billion in annual revenue and is valued at $23 billion today,” according to the deal announcement.

Artificial intelligence
Also this morning, Bethesda, Maryland-based iLearningEngines, which is a provider of AI-powered learning automation and information intelligence for corporate and educational use, has agreed to merge with Arrowroot Acquisition Corp, a blank check company backed by Arrowroot Capital.

When the deal closes, the combined company will be named iLearningEngines, Inc., and is expected to remain listed on the NASDAQ under the new ticker symbol, ‘AILE’.

“We explored dozens of candidates for our first SPAC investment, searching for the next category killer, a $1 billion plus business that could be the next $10 billion company,” said Matthew Safaii, Arrowroot chief executive. “We believe we found that in iLearningEngines. This is a company with over 100,000 engineering research and development hours invested in creating one of the biggest independent AI focused software platform companies in the world.”

Arrowroot is in its 10th year investing in enterprise software companies.

Cooling off
For many, the spring season is one of the best times of the year because of its moderate temperatures. But it is also a reminder that summer is around the corner, so it serves as a prompt to kick-start preparations for the upcoming hot temperatures, including acquiring, testing, repairing and installing AC units and other air conditioning equipment. The fast-growing HVAC business is increasingly regarded as a non-discretionary expenditure, the sector is highly fragmented, and its business model generates recurring revenues, PE firms have told us.

Rajiv Sheth, a principal at Investcorp told me in a recent interview that warmer temperatures, especially in the southwestern region, along with the growing population, market fragmentation and the opportunity to penetrate new markets, are some of the attributes that attracted Investcorp to acquire Shearer Supply, an HVAC equipment distributor based in Dallas.

“We are excited for this partnership as the HVAC industry is a highly fragmented market that represents a $30 billion market,” he said.

Throughout March and April, PE Hub has seen a slew of PE investments into the HVAC space, and I rounded up seven deals.

Here are details on some of the deals:

In mid-April, lower mid-market PE firm Sound Partners acquired Los Angeles-based Marathon HVAC Service.

Later in the month, Marathon acquired two founder-owned HVAC firms: Los Angeles-based SoCal HVAC Specialist Heating & Air Conditioning and Las Vegas-based Aloha Air Conditioning, Heating and Refrigeration.

Service Champions, a portfolio company of New York-headquartered Odyssey Investment Partners, in April agreed to acquire Fetch-A-Tech Plumbing Heating Air, a Las Vegas-based HVAC company.

Orange County, California-based Service Champions is a provider of plumbing, heating and air conditioning services.

The acquisition is part of the company’s growth strategy to scale its footprint in other cities and states throughout the country, said Frank DiMarco, Service Champions’ chief executive, in a statement.

Dallas-based Trinity Hunt Partners earlier in April made a majority investment in Alliance Group, a Vermont-based provider of commercial HVAC services.

Both organic and inorganic strategies are on the table to scale Alliance Group, said Garrett Greer, a partner at Trinity Hunt, in a statement. “We look forward to scaling the business through strategic acquisitions across the US and supporting management as they continue to execute on organic growth initiatives.”

That’s it for me today. You can reach out to me at obey.m@peimedia.com.

PE Hub editor-in-chief Mary Kathleen (MK ) Flynn will be back with the Wire on Monday.

Have a great weekend.