There's no hotter engineering sector (forgive the pun) than HVAC. With inexorable pressure on new building construction teams to deliver sustainable solutions and ease of maintenance no project can be started without the involvement of specialists in environmental control. The North America air conditioning systems market alone is worth some $30 billion.
Air conditioning is becoming one of the most important facets of social infrastructure, indispensable to providing people with good health and a culturally advanced lifestyle, as well as to fueling economic development. At the same time, air conditioning uses large amounts of energy. One of mankind's greatest challenges will be to minimize the rise in energy consumption accompanying economic development, especially in the rapidly growing emerging countries. Now that the USA has ratified the Paris Climate Change Agreement the impetus toward energy efficiency in the climate control industry will undoubtedly intensify.
Key market players in North America include global manufacturers like Carrier Corporation, Daikin Industries, Ingersoll Rand, JCI, Trane and others. These multi-billion dollar corporations go to market via representative companies, of which HTS Engineering is a dominant name right across North America. With annual revenues in the region of $350 million HTS has grown since its foundation in 1992 through a strategy of entrepreneurial ownership: there's a global ownership group of individuals who have a stake in each of the company's 16 locations across Canada and the USA, and regional principals who have a share in their own territory. This structure gives HTS a unique focus on success and a single focus on creating success for all those involved with cooling and heating decisions – from selection, design and purchase, to installation and maintenance.
The most active HVAC market and hence one of the largest HTS business is Texas. President of operations there, and a member of HTS's global ownership group Mike Donovan epitomizes the entrepreneurial spirit of the company, having been a finalist in Ernst & Young's Entrepreneur Of The Year program in 2009, 2010 and 2015, cited for the market-changing, innovative concepts and personalized customer service he introduced, enabling HTS Texas company to grow from start-up in 2002 to gross $163 million in 2015. The Texas economy, he explains, has done better than most though the global recession, though Houston itself has felt the effects of the dip in oil prices. “Judging by non-residential construction starts in Texas I'd say the market is now stronger than in 2009. As a company we are very divested across sectors from healthcare, higher education, government, judicial and many others, so if someone isn't starting an office building there is always something else going on. And HVAC demand is stabilized by the sheer amount of replacement that has to be done in what is a very mature market. Don't forget that in Texas, if you don't have air conditioning you don't have a business!”
Another factor in HTS Engineering's success has been the exclusive product rights it holds in many key markets to sell the products of the world's largest air conditioning manufacturing company Daikin Industries. Daikin, with annual sales of around $18 billion, has a massive product line, allowing HTS to provide custom-built installations for its clients. With exclusivity in most of the Texas and Ontario markets, a recent restructuring of the organization in the important New England business has given a huge boost to that business too.
Key to growth in New England
To hear about that we jump from Houston to Boston. Dan Senese is one of the most experienced engineers in the business having spent more than 20 years with HTS in Canada and the USA and now one of four Principals who lead HTS New England. This company was highly respected in the industry by consulting engineers and contractors, but growth at the rate of Texas had eluded it, he admits, because it remained something of a boutique business focused on highly specialized, bespoke products. “We did not have the breadth of more standardized products available from the 'big four' manufacturers.” While it was representing a number of very high-end manufacturers such as Haakon Industries, HTS New England was finding that its engagement with some major clients tended to be more intermittent than continuous. Bearing in mind what we have said about the importance of a relationship with a major manufacturer such as Daikin, it was strongly felt that HTS needed a broader product portfolio if it was to achieve significant growth.
Towards the end of 2015, HTS Principal Jeff Ritchie and Peter Foss contacted John Duffy, president of the 50 year old HVAC company Stebbins-Duffy. Duffy was receptive to the idea of a merger, observing that together the companies deliver results that far surpass what they could accomplish as separate entities. There's very little overlap in account coverage, he added, and cross-pollination of industry knowledge between the two companies could create a whole new level of expertise. Significantly for HTS, Stebbins-Duffy was the exclusive New England representative of Daikin products, so the fit was perfect.
Agreement was reached on August 15, and the following day the news was released to the industry. HTS New England is now led by former Stebbins-Duffy VP Emery George together alongside three HTS New England principals, Peter Foss, Jeff Ritchie, and Dan Senese. The market has already responded very positively, says Senese. “We had already shared the business plan with suppliers to both companies. Manufacturers like Daikin and Haakon aspire to be with a representative that dominates in its territory,” he says. They were ready and willing to take on the tasks of product familiarization and training that lay ahead. After all, he points out, they were seeing an instant doubling of the sales force promoting their products.
Next came the difficult task of dividing the accounts to focus on contracting clients on the one hand and consulting engineers on the other. In New England HTS had since its foundation in 1997 employed hybrid sales people, who called both on consulting engineers who design the system and mechanical contractors who purchase and install the equipment. “They are well rounded sales people but spread a little too thin. They would be selling a system then getting involved in project management while it was installed. But every minute you spend on project management is time you are not devoting to digging up new business!” The sales people from both companies were interviewed to see which path they wanted to take.
Out of the four principals it was seen as sensible to have two on either side. Emery George and Dan Senese were deeply involved on the contracting side, Peter Foss and Jeff Ritchie both had an engineering background, so the first two relinquished their engineering accounts and Foss and Ritchie their contracting accounts. “We all manage fewer accounts now, but have much more to sell, are more focused and more relevant to our customers.” With a full suite of products and the power of Daikin the merged entity can become involved in many more projects too.
Immediately after the merger was announced, the principals started to call on their clients to introduce the new sales teams and present to them the advantages the merger offers. “I wanted to thank the partners for their support over the years, and assure them that I am not going anywhere, but remain part of the leadership team and want them to know I care they are in good hands.”
One of HTS's great strengths is its in-house IT development team, which has created the TRAX software, a custom made solution that runs its back office functionality and ERP. Part of the logistics merger will be to migrate Stebbins-Duffy to this platform. “TRAX places us head and shoulders ahead of the rest of the industry,” says Mike Donovan. “The next release will be when we go online with our project management module so our customers can track progress: that is a really neat feature and it's rolling out in 2017. All of our software is in the cloud, with data center backup in Toronto and other locations.”
The HTS story is not complete without mention of its sister company Direct Expansion Solutions (DXS) founded in 2007 to develop a dedicated team of specialists to address the rapidly growing Variable Refrigerant Flow (VRF) segment of the air conditioning industry. Daikin Variable Refrigerant Volume (VRV) equipment and VRV technology was very popular in Europe and other advanced economies like Australia but had not really impacted the USA till Daikin purchased McQuay, in 2006. “We wanted to create a business that sold the technology Daikin had brought in, so that we could become the go-to representative company for VRV,” explains Senese. “DXS is now that company, with a specialist team focused on selling a single product and doing it well. We have become very good at that!”
From its start in Central Texas, DXS grew in Southeast and North Texas with offices in Austin, Dallas, Fort Worth, Houston and San Antonio. In 2012 it opened an office in Toronto and earlier this year the company launched operations in New England. As we have seen, a lot has been going on this year, and it couldn't better time to celebrate these changes. On November 3 HTS/Stebbins-Duffy and DXS and Daikin will be hosting an industry-wide event to introduce their clients, their clients' clients and the entire construction and maintenance community to meet the new teams. It will be a hands-on event, promises Global Marketing Director Ashley Heisler, with a chance to view the latest advanced technology from Daikin including VRV “We want to thank all our stakeholders and take this chance to let them learn from industry experts, while celebrating with a live band, great food, cold drinks and of course giveaways and door prizes!”
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