Johnson Controls buys Giant Cal-Air

By Robert P. Mader of Contractor's Staff WHITTIER, CALIF. Johnson Controls has purchased California mechanical giant CAL-AIR here in a cash deal. Terms were not disclosed, although Tim Fahringer of Kerlin Capital Group, which helped orchestrate the deal, told CONTRACTOR that CAL-AIR was an attractive acquisition that commanded a premium price. CALAIR'S service operations had continued to grow through

By Robert P. Mader of Contractor's Staff

WHITTIER, CALIF. Johnson Controls has purchased California mechanical giant CAL-AIR here in a cash deal. Terms were not disclosed, although Tim Fahringer of Kerlin Capital Group, which helped orchestrate the deal, told CONTRACTOR that CAL-AIR was an attractive acquisition that commanded a premium price. CALAIR'S service operations had continued to grow through the recession, Fahringer said.

CAL-AIR was ranked as the nations 20th largest mechanical contractor in CONTRACTOR'S 2004 Book of Giants (May, pg. 24)) with revenues of $170 million.

CAL-AIR was a 100% ESOPowned company, explained Casey Condron, president of CAL-AIR. Johnson Controls purchased 100% of the stock in the ESOP.

More than 200 non-union employees held stock in the ESOP, Fahringer said. It is primarily used as a retirement vehicle for employees. As employees retire or leave the company, they were paid out in notes for periods up to five years. As the company grew, it was paying on an increasing number of notes, but that was not a financial burden on the company, Condron said.

"It simply is another line item in the overall list of obligations that you have to deal with every year that other companies dont face," Condron said. "There were a number of strategies we wanted to employ that required more capital, so we decided to re-capitalize the company. The surest way to do that is to be acquired by a company like Johnson Controls."

Eric Reisner, vice president and general manager/service for the Controls Group of Johnson Controls, added: "This acquisition strengthens our ability to service existing customers and attract new customers throughout California. Cal-Air's management team and employees have an excellent customer service reputation and will be a strong addition in helping Johnson Controls achieve our growth goals."

Condron has been named Western regional vice president and general manager for Johnson Controls, which includes the management of CAL-AIR and the Western regional service offices of Johnson Controls. The states in the Western region are comprised of California, Nevada, Arizona and Hawaii. CAL-AIR has 11 offices in California and Johnson has four. In addition, Johnson Controls Service Group has one office each in Hawaii and Nevada and two in Arizona.

The combined operation has a total of about 1,050 employees, including union workers. CAL-AIR employs Sheet Metal Workers, UA mechanics (mostly pipefitters) and some IBEWrepresented electricians in Northern California. The company will continue to be called CAL-AIR.

"We have not done any formal changes yet as far as our marketplace identity, Condron said. Its still business as usual for CAL-AIR and for Johnson."

The combined operation of CAL-AIR and Johnson Controls Western region will have revenues in excess of $200 million.

"This clearly makes us the largest mechanical service company in the Western U.S.," Condron said.

CAL-AIR and Johnson Controls have put together a number of integration teams to address specific facets of the business on a joint basis to determine what's best for the firm's customers and employees, which are the two prime focuses of the combined organizations, Condron said.

He took care to make the distinction between CAL-AIR and the Johnson Controls Service Group and Johnson Controls Systems Group.

The Johnson Controls Service Group performs service, repair, remodeling, onsite controls and HVAC operation, energy services, and customer-direct design/build/negotiated small project work. The Johnson Controls Systems Group performs large controls projects.

"The John Controls Systems business provides control pricing to general contractors and to customers on large construction projects and that is not a part of CAL-AIRs or my responsibility," Condron said. "Its a separate, standalone business."

"CAL-AIR does small construction work for our service customers, but we do not bid large construction projects. A separate group in Johnson Controls does the pricing of controls on larger projects. We don't want Johnson Controls' general contractor customers and mechanical contractor customers to be concerned about competing with CAL-AIR."

Condron praised Fahringer and Kerlin Capital Group, saying that the merger was an amazing cultural and strategic fit, and was completed quickly and with incredible efficiency. Fahringer said CAL-AIR and Johnson Controls had no overlap.