On August 29, Daikin Industries, a Japanese multinational air conditioner (A/C) manufacturing company, announced its acquisition of 100% of the stock of Goodman Global, the second largest HVAC products manufacturer in the U.S. market, for a total acquisition value of $3.7 billion from the private equity firm Hellman & Friedman. To realize this transaction, Daikin will leverage its $1.5 billion cash in pocket as well as issue a bond of about JPY50 billion (around $641 million), instead of raising money from the equity market. This transaction is still awaiting approval by the U.S. government and is expected to be finalized in the last quarter of 2012.
The negotiation between the two parties actually dates back to 2010, but Daikin suspended the process after the earthquake and tsunami that hit Japan in March 2011. This persistence on Daikin’s part indicates the high strategic importance of this $3.7 billion deal, allowing the company to expand its North American presence. On one hand, Daikin is able to obtain Goodman’s duct solutions, which will allow it to capture a considerable share in the world’s largest HVAC market — U.S., where Daikin’s ductless solutions are not popular yet. On the other hand, Daikin can absorb Goodman’s specialties in low-cost product manufacturing into its global operations. (The news elicited mixed feedback from Daikin’s shareholders, who worried about the impact of this new debt on its balance sheet in these uncertain times.)
Daikin’s acquisition of Goodman should be worrying news to the leading HVAC players in the U.S. market, such as Lennox, Carrier, and Trane. The deal will not only allow Daikin to sell its own ductless solutions into the U.S. market through Goodman’s distribution channel, but also improve Goodman’s products through Daikin’s competencies in energy saving and smart control. Moreover, Daikin will become the world largest HVAC systems manufacturer, giving it significant market muscle. Clients supplying the HVAC industry should closely monitor the progress of Daikin and Goodman, as well as the response of their key competitors.