Watsco, Inc. (WSO) is acquiring Carrier's HVAC (heating, ventilation and air conditioning) distribution network in Canada. The business will be operated as a 60:40 joint venture under the name Carrier Enterprise Canada. The remaining 40% of the joint venture will be held by UTC Climate, Controls & Security, of which Carrier was a unit. The transaction is expected to close by the end of April.
The Watsco-Carrier association goes back to 2009. Watsco had formed another 60:40 joint venture with Carrier to distribute Carrier, Bryant and Payne products throughout the U.S. Sunbelt, Latin America and the Caribbean. Carrier had contributed 95 locations in the U.S. Sunbelt and Puerto Rico and the export division located in Miami, Florida while Watsco brought with it 15 locations. Watsco had options to purchase up to an additional 20% interest from Carrier (10% beginning in July 2012 and an additional 10% in July 2014).
Subsequently, in March 2011, Watsco formed a 60:40 joint venture with Carrier Corporation’s northeastern distribution network. The joint venture gave Watsco access to Carrier’s distribution network of 28 locations encompassing 11 states.
Carrier’s Canadian distribution network encompasses 35 locations catering 5,000 customers. It generated revenues of $330 million in 2011. Following the transaction, Watsco's annual revenue will go up to $3.4 billion.
The company continues to increase its market share through strategic acquisitions and expansion of its product offering. The company’s earlier joint-ventures with Carrier not only added new products to its sales mix, but also marked Watsco's entry into the international markets with the addition of Latin American and Caribbean sales operations.
The new joint venture will significantly expand Watsco’s presence into a large market in the Americas with a broad offering of residential and commercial products that are energy efficient and environment-friendly.
Watsco has a fundamental environmental factor working in its favor. Its network is concentrated in the southern and southwestern U.S. (the Sunbelt region), where air conditioning is considered a necessity.
United States currently has 89 million central air conditioning and heating systems installed, which are older than 10 years. These systems are generally below the government mandated energy efficiency and environmental standards. Thus, Watsco has a great opportunity to replace these older systems with its lower energy consumption and environmentally friendly solutions. However, a decline in housing starts remains a concern. The shares of Watsco currently retain a Zacks #3 Rank (short-term Hold recommendation).
Watsco is the largest distributor of air conditioning, heating and refrigeration equipment as well as related parts and supplies in the United States. The company operates 508 locations serving over 50,000 customers in 36 states, Puerto Rico, Latin America and the Caribbean. Watsco competes with Johnson Controls Inc. (JCI) and privately held Gensco Inc. and Gustave A. Larson.
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