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2026.09.29 | TB | Industrials | Madison Air: EBM-Papst Deal & Integration

原标题：Madison Air Solutions – Announced Acquisition of EBM-Papst & Integration Benchmarks

#industrials #thermal

Third Bridge · 2026-09-29

Analyst-led • 25 Sep 2026

Companies: MAIR US, JCI US, TT US

Jochen Friess (JF) CEO at Roto Frank Holding AG

Ryan Keeney (RK) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

RK [00:00:06]: Welcome to Third Bridge's Interview entitled Madison Air Solutions – Announced Acquisition of EBM-Papst & Integration Benchmarks. I'm Ryan Keeney, and I'll be facilitating today's Interview with Jochen Friess, former EVP of Global Product Management at EBM-Papst.

Jochen, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

JF [00:00:37]: I agree.

RK [00:00:39]: Could you begin today with an introduction of your background?

JF [00:00:45]: I have been employed by EBM‑Papst for 27 years in many different roles, mainly being active in the sales field. I was country head in different areas in France and the Middle East. I have been working in China for quite a while. In different roles, the last nine years or seven years, I was responsible for the global sales organisation. The last three years, I was responsible for the global product management. In this role, I was also part of the executive management board.

Questions

00:01:22] Can you give us an overview of EBM‑Papst's equipment portfolio? What are the company's key equipment lines historically? What typically generates the most revenue and profit?

JF [00:01:40]: On the product side, I think their set up is to produce motorised impellers, so fans, which include a motor and even control, so-called EC motor, electronically commutated motors. That makes up 80% of the business. I would say about 20% might still be traditional AC motors, but the majority is EC motors. In this technology, they are mainly differentiate between centrifugal fans and axial fans. It's just to cover different applications in the HVAC equipment. There, the power ranges from maximum 6kW power consumption down to 2-3W. The product range is quite large with almost 20,000 different SKUs.

00:02:35] Are the end markets for EC [electronically commutated] and AC [alternating current] fans relatively different or are they mostly just speaking to different types of HVAC [heating, ventilation and air conditioning] OEMs?

JF [00:02:49]: That's correct. In the past, 20 years ago, majority was AC solution. Now the market evolved during the last 20 years. Nowadays, in the same application, there are still some manufacturers using AC, but the majority switch to EC technology.

RK [00:03:12]: Do you expect any future shifts in product type away from EC fans in 3-5 years?

JF [00:03:21]: No, but I think it will shift a bit towards integrating more function into EC motors. EC motors have a control inside. That means they have a PCB inside, which allow us to use an EC motor as some kind as a sensor as well. The motor can detect motor speed. It can also detect environmental temperatures. It's also easy to equip the motor with different sensors. I think it gives an opportunity for that technology to also better or further improve the efficiency of the whole refrigeration cycle, air conditioning cycle by better monitoring and then in control and improve the cycle. There are digital solutions, which EBM-Papst offers today already. Their environment, they call it Nexaira. That's a new approach to sell or upsell, I would say, the products.

00:04:28] What were your initial thoughts on Madison Air Solutions' August 2026 announcement of its intention to acquire EBM-Papst? Did any specific pros or cons jump to your mind?

JF [00:04:42]: My first impression was, "Wow, what a value they pay for the company, especially as the company three years back, almost had zero profit or only in the range of 2-3% EBIT." Now seeing a value of USD 5bn was quite astonishing for me. That was the major impact I saw. On the other hand, I know that they are very strong in the data centre market, which is a huge or very fast-growing market. They are excellently positioned in that market. My thought was, "Okay, somebody like Madison Air, they must believe that this market, the data centre market is significantly growing not only for the next 2-3 years, but much longer." That was a bit my evaluation why they would pay such a high price.

00:05:42] Could you walk us through why EBM-Papst has historically had 2-3% EBIT margins? How many years ago was that?

JF [00:05:54]: I think that starts really back 20 years ago. The company had, I believe, was in the range of double-digit EBIT, but then they separated from Ziehl-Abegg, which is today the biggest competitor on this high-end fans. After the separation from Ziehl-Abegg, both companies battled each other and prices dropped significantly over a period, I would say, of 15 years down to single-digit EBIT. Then COVID came. After COVID, there was a huge boost in many markets, but especially, for example, in heat pumps, but also quite some other markets creating, I would say, kind of artificial market because at the end, many products ended in a stock and not being used. After this post-COVID boom, there was also a post-COVID decline in the market. From '23 to '25, I would say the market was very slow. Many different markets EBM-Papst was active and had a significant slowdown and now it's since levels came back to normal levels, supplies really cover demand and not as it was in the past. After this market decline, of course, there have been some overcapacities and also overheads too much. That's why they came from, I would say, '23-24 with very low EBIT levels due to this significant market slowdown. Now coming back to in the next phase, I would say, in the next few years are looking much more promising.

00:07:46] Are EBIT margins different for EC vs AC fans? What would you expect EBIT-wise for 2026 compared to 2027, if it is more normalised now?

JF [00:08:06]: For the next three years, I see a huge demand in data centre equipment. Due to this high demand, also other HVAC equipment in commercial air conditioning will see a shortage in supply of fans. That's why I see a huge possibility for EBM to increase prices on the one side in data centre applications, but also in the rest of the commercial air conditioning and even in some of the refrigeration because there's a lot of cross-selling, similar products used in these markets. Due to the high demand in data centre, there will be a significant shortage of fans, which allows them in my opinion, to significantly increase prices, not only for data centre, but also for the other significant markets, and that will allow them, in my opinion, to have really nice profits.

00:09:07] By how much could EBM-Papst increase pricing, given the strong demand? Are you thinking more in the lines of high-single digits or double digits?

JF [00:09:17]: I would say in the range of 10-20% in this range, but not more.

00:09:24] What are benchmark historical pricing levels for EBM-Papst's legacy HVAC applications vs refrigeration vs data centres?

JF [00:09:37]: That's very difficult to say because you have so many different applications. Yes, there's more than 15,000 SKUs for EBM-Papst alone. If we talk about EC motors in the range of 3-6kW, it starts from about USD 500 going up to USD 1,500. It depends really on the functionality, how much torque, what kind of periphery you use with the product, but I would say, rough range in data centre is between USD 500 and USD 1,500 per fan.

00:10:18] What are the types of fans that will likely see higher demand because of the data centre boom?

JF [00:10:33]: In data centres, I would say, in general, in commercial air conditioning, you have, on the one side, the indoor side of the air conditioning cycle, which really moves more or less the air. In data centre, these are CRAC units, CRAH units. Here, you typically use centrifugal fans, but this applies as well to commercial air conditioning. You have air handling units and in these air handling units, you have centrifugal fans. Demand for this one will grow. In parallel, demand for normal air handling units in commercial buildings, office buildings, factories and will increase as well or it will generate a shortage, so prices in this market will increase as well. Same applies on the outside part where you need to get rid of the heat, which is on chillers, on evaporating units. There, you typically use axial fans, larger diameter, high airflow, but less pressure. Same here, you need them for data centre, but you need them on all other commercial buildings as well. The effect is similar shortage in the market, and therefore, prices will go up.

00:11:51] You expect EBM to be able to push prices about 10-20% generally across its fan portfolio. What type of order volume increases would you expect to see in 2026 compared to 2024-25 as a result of the data centre boom and growth in other commercial applications? Are we thinking double digits or high-single digits?

JF [00:12:16]: I think the demand in the next 2-3 years will increase by 30-40%, but I don't see that any of the manufacturers will be able to scale that fast. From my experience with EBM-Papst, I trust they can increase in the range of 20% YoY, but not more. It takes them quite a while to develop new toolings, machines, toolings with suppliers. I think you have quite long lead times for that. Therefore, I don't see the chance for them to increase 30% or 40% of revenue because due to the limitations they have in operations. To scale that it's very difficult.

00:13:01] Do you think EBM-Papst's leadership team is actively investing in the supply chain and capacity to take a larger and larger chunk of the demand?

JF [00:13:16]: Yes. The crucial part will be, in my opinion, North America. I think because now the biggest growth is coming from North America. Therefore, they really need to speed up the operations in North America. So far, there is still a lot of parts, components, or even finished goods imported from Europe. Therefore, I know that they try to speed up their footprint in the US. There, maybe Madison can help them to speed up. Maybe they have a good supply chain network, maybe they have even available factories, whatever. I think that, in my opinion, was a bit of weakness of EBM-Papst the last 5-10 years. They did not manage to speed up the operations in North America, especially to establish a reliable and broad supplier base, which allows them to source, I would say, 90% of components locally. This is still not yet the case, and this is limiting them from growing faster and also to improve profits to avoid having shipped all components or semi-knockdown components to the US from the factories in Europe.

00:14:36] When we talk about supply expansions, especially for EBM-Papst growing in the US and North America in general, what do you expect that to look like over the next 1-2 years? Does the company need to strengthen supplier relationships and secure more raw material supply, or do you expect it to also increase manufacturing capacity on the floor?

JF [00:15:09]: Both. I think they need more production capacities themselves. I think that's easier to scale, in my opinion, but they need to find local suppliers and the components EBM-Papst is sourcing, purchasing from local suppliers are quite complex, so they don't have a deep vertical integration. EBM-Papst mainly only does really assembly. They design the motors, fans, but die-casting, sheet metal parts, electronics, all this, they get according to their specification from suppliers. To develop these suppliers, they have a good network in Europe and also in Asia, but in North America, it's not yet settled very well. That's why they have to import so much components, and they need to develop these local suppliers according to their specifications, and that will be really a challenge.

00:16:10] Could you walk us through core die-casting, sheet metal and other component suppliers that are actually manufacturing the components that EBM-Papst assembles? Are there any existing relationships in the US with strong local suppliers?

JF [00:16:31]: I can't name them. I would say all the European ones, you would not know at all because these are not large-sized companies. Many of them, for example, those who do the plastic impellers, plastic moulded parts, these are really specific local suppliers in the area around the factories because that makes sense for them. Transportation is a crucial part of that, so you can't ship them even from China or elsewhere or even thousands of kilometres in Europe. You need to have them close to your factory due to this huge dimensions. An axial fan can be up to 1.5 metres in diameter, but it weighs only about 10kg. You would ship a lot of air through the world if you would have your suppliers far away from the factory. That is the challenge to find really local suppliers in the area to then be able to produce a final fan motorised impeller.

00:17:39] Would you be able to give an estimate for EBM-Papst's annual manufacturing capacity?

JF [00:17:49]: That's, again, hard to say because you have fans with a dimension of maybe 10cm. They can produce millions of them per year, but those going into data centre, again, there it differentiates a lot. The bigger motors or the biggest motors, they are in the range of one million pieces per year. That's the 150 motor. I think that's the most important product for data centre, but there are bigger motors as well, smaller. The overall output might be 50 million, but many of that is not relevant for the commercial air conditioning.

00:18:38] Let's say 50%, or 25 million units, of your example of EBM-Papst output is related to the commercial HVAC [heating, ventilation and air conditioning] or data centre portfolio. Is there a risk that the company is not able to get above 25 million-30 million units because of the lack of local supply chain partners, or partners being private and potentially unable to fund their own expansion? Is there a risk that manufacturing capacity for this critical growth market is actually not able to scale over the next 2-3 years?

JF [00:19:17]: Yes. I see a big risk, and EBM-Papst was in that situation about four years ago, where the supply chain really broke down. The advantage at the moment is that not other markets are not that strong. The whole automotive industry in Europe is really down. Therefore, at the moment, the risk is lower, but I'm sure if they want to ramp up 20% or even more every year, many suppliers will struggle with that. It's enough to have one component being not available for product, then the whole production line stops. There is a significant risk. Hopefully, they learned something out of the crisis in 2021-22. Still today, I see a significant risk that this will happen again. I know at least not from EBM, but I know that Ziehl-Abegg, the major competitor, here is currently really supply chain issues. Therefore, I believe this could happen to EBM-Papst as well.

00:20:22] Are there any notable US-based competitors to EBM-Papst that may have an easier time sourcing US supply relationships and scaling faster than EBM?

JF [00:20:33]: Not on this technology. In US, you still have a lot of manufacturers of HVAC equipment who use shaft motors and sourcing impellers separately. It's somehow in substitute, but on a completely different quality level. What EBM and Ziehl and maybe 2-3 others are producing are motorised impellers. Motor integrated in the impeller, having significant advantage on weight, on efficiency, on noise level and so on. Therefore, on this, I would say, high-end fans, I don't see much competition or so far, not really a serious competition of local competitors in North America. The biggest competitor is Regal Rexnord, but majority of that is really shaft motors and then assembled with an impeller. Technology is slightly different, but this is the main competitor for EBM in North America.

00:21:49] Would you say that EBM-Papst is the leading assembler of high-quality EC and AC fans? If yes, does that give the company sticky pricing power within the market overall?

JF [00:22:01]: Technology-wise, I would say EBM and Ziehl-Abegg are on the exact same level. Both of them have really high-quality products. On commercial air conditioning, where data centre is part of this, I would say EBM-Papst is a little bit bigger today than Ziehl-Abegg, but not too much because Ziehl-Abegg, I would say, 85% of their business goes into commercial air conditioning, and they do about USD 1bn-1.2bn. Let's say, their share in commercial air conditioning is USD 1bn. I would say EBM-Papst is same size in commercial air conditioning also around USD 1.2bn-1.3bn. Therefore, in this specific market, they are equally big. EBM-Papst has a difference that they serve many other markets where, for example, Ziehl-Abegg is not active at all in residential or in heating or transportation. There are other markets which then add up to a much bigger turnover for EBM-Papst. On commercial, they are slightly bigger than Ziehl-Abegg, but not too much. Technology-wise, both are really in an outstanding level.

00:23:21] Over the next 2-3 years, would you expect competitors other than the ones we just spoke of to catch up to EBM-Papst technology- or quality-wise, or do you expect that technology moat to persist through the long term?

JF [00:23:35]: There are several small European manufacturers like Hidria or Rosenberg, but they will not be able to compete because they are too small. Even if they grow by 30%, they are still very small. There's one Asian competitor, which is Delta Electronics, which is a very powerful organisation because this is a USD 3bn or USD 5bn revenue company with very powerful electronic development. They are also quite good in aerodynamics, so this is a really dangerous competitors, but so far, they do not have a local footprint in North America. This is hindering them to grow because the market needs local supplies, short-term lead times and to ship this out of Asia into North America with container loads of 100 or 1,000 even containers is a high risk. You have a lot of components in the pipeline on the sea freight takes six weeks or even longer. As long as they do not invest in North America in a local production, I don't see much risk for Ziehl or EBM to lose market share. I don't see that.

00:25:02] Historically, how has EBM-Papst dealt with the North American tariff situation? Do you think being acquired by Madison Air will allow the company to be less exposed to tariffs long-term, or will it continue to risk higher exposure as it sources a lot of components from overseas?

JF [00:25:27]: I think the strategy is already since many years to produce local for local, to produce in Europe for the European market, in Asia for Asian market and in North America for North America. That's a strategy already existing many years. As I mentioned before, so far, they are still struggling to reach a local supply base of 80% or even more percent. I would say today, it's still more than 50% is coming out of Europe. If they are able to better implement their strategy local for local, so source majority of the components from the American market, then I think tariffs are not a problem for them. As I said, there is no change in strategy even with the acquisition. Maybe Madison helps them to speed up that process a little bit. In general, yes, in the past, they didn't have much tariffs. It's only started now with the new legislation some years ago. That's why it was so far not a big issue over the last 2-3 years. Yes, there has been some issue, but most customers allowed or they have been able to forward most of the additional tariffs to the customers. That's why they did not suffer too much to my knowledge, but the game-changer will be to have local suppliers and not being dependent out of the European factories.

00:26:57] You noted that the game-changer is building up local supply. Is that something you are confident will happen for EBM-Papst after the Madison Air acquisition in the next 1-2 years? How would you rate your confidence level there if that is such a game-changing portion of this thesis?

JF [00:27:18]: Okay. Not sure where they really are. Let's assume today, they are at 50% of parts being sourced locally or maybe even 40% only. I'm sure they will improve this by 20%, but there's still a significant part missing in about 2-3 years.

00:27:38] HVAC OEMs have talked about market-wide fan capacity constraints. How might lead times be impacted by demand increasing 30-40% for commercial-related fans, as we were touching on earlier? Do you expect lead times to continue expanding vs their traditional point over the next 1-2 years?

JF [00:28:03]: I know for some production lines, I think lead times will increase significantly. Of course, it's more when they sell capacity than really complete products already. I think they usually have had in the past during my times, and I'm quite sure that is still the same. You rather agree with customers on annual volumes, which they will take, but the call-off of the exact volumes and also the exact SKUs will still happen short-term, let's say, between 4-8 weeks before shipment. They will receive the final order only eight weeks before production to define what parts are needed. That's how the industry is working. It's unusual that all orders are already concretely booked in the systems.

RK [00:29:12]: Do you think lead times could potentially hit three years by 2027?

JF [00:29:22]: I think, yes, if you would be a new player in that market and wanted to buy fans, your lead time would be three years.

RK [00:29:31]: What if a customer had an existing relationship with a supplier?

JF [00:29:34]: If you have an existing relationship, you will have a problem. I think then you will have probably a certain volume committed by the suppliers. If you want to increase to higher quantities, you have a lead time of 2-3 years as well. Of course, it depends a bit how quickly they can ramp up their output, but there will be many customers waiting three years for parts.

00:30:00] When it comes to EBM-Papst and Madison Air's long-term forecasted earnings, a 2-3-year fully-booked backlog is not necessarily a bad thing. Are there any downsides to being fully booked for 2-3 years, especially for high-demand equipment lines? Is there any risk of market share shifting, customers having to source alternative suppliers or quality suffering as the company tries to push throughput heavily?

JF [00:30:35]: For me, the big question is, will EBM really jump only on the data centre hype? Give all the additional capacities, which they will create, will they give this only to the data centre customers, then this is the most profitable approach because at the moment, there is high demand. They are very well positioned. That means in other markets, for example, in the traditional refrigeration market, they will definitely lose customers because they are forced to source elsewhere from competitors. The question is how long the data centre hype will continue. If they, in one stage, want to win back customers, then, for example, in refrigeration, it will be very difficult for them because they lost that customer relation. The question is, is the data centre growth a long-term growth, then it's no pain for them. If there is a slowdown in a few years and they would need other customers again in other markets, then that's a real threat because then the customer relations are gone.

00:31:56] What typical HVAC supply relationships does EBM have with customers? Do you expect those relationships to continue after the company is acquired by Madison Air? Would legacy residential or even commercial HVAC OEMs source fans or other equipment supply from elsewhere instead of dealing with a potential competitor in Madison Air, which services both residential and commercial HVAC?

JF [00:32:24]: I think I'm sure that's a huge opportunity at the moment for Asian manufacturers for some of the other European manufacturers to get market share in those markets where EBM has a lot of cross-selling between commercial air conditioning data centre and, for example, heat pumps or refrigeration because similar product goes also into that market, which they sell to data centres. On all these products, I'm sure there is a huge opportunity for other manufacturers to win market. On other markets, which have very specific products, for example, transportation or, for example, gas heating, there, the market will not be much impacted because these products, EBM parts can't use for any other markets because they are so specific.

RK [00:33:26]: Does the potential risk of market share or customer relationships loss outweigh the benefit of being a vertically integrated HVAC producer for both commercial and residential? I know there's some white-labelling relationships that exist between even potential competitors here today. Net-net, is this a positive in your mind or could it be construed negatively as well, if customers leave EBM?

JF [00:34:03]: The question again is if the market slows down in data centres, then it has a negative impact because those customers are gone. Even then I would recommend for EBM-Papst to do the same, to focus now on the highly profitable market, which is commercial air conditioning data centre because that's a unique opportunity, so you have to jump on that. If this market is slowing down, then you have to develop the other markets again, but I don't see a negative impact because at the end, profit-wise, it makes a lot of sense to jump onto this hype now with data centre and make profits out of that.

00:35:04] How do you think Madison Air can both deleverage EBM-Papst's balance sheet and adequately service and supply the AI demand boom by investing in the company's supply chain and beefing up certain equipment lines? Is there any tension in your mind about the ability to deleverage while investing in production capacity?

JF [00:35:32]: I'm not so optimistic on that. On the one side, I don't see really much synergies between both companies. One part of Madison Air, the company Nortek is a customer for EBM in the data centre equipment market, but Nortek, to my knowledge, it's a very small player in that market. Therefore, I don't see much synergies in being vertically integrated for them. They might grow, but other customers are, for sure, growing faster and having a much bigger share in data centre. On the vertical integration, I don't see synergies. On deprioritising or even exiting some of the other business, yes, I believe, my opinion, an American investor will do this, that for some markets which are less profitable, they will push an exit from these markets. This will not generate much additional profit because those markets, they're still profitable, although it's on a very low level, but it will not help EBM to improve profits because overheads will be much smaller or something like that. I don't see much synergies in that acquisition, and that was one of the main question marks I had when I heard about that. For me, the main benefit is really, my opinion is that they see that there is a huge potential in data centre and there is a huge growth, but having synergies or can deleverage some potentials, I don't see that.

00:37:21] If Nortek is historically a smaller customer of EBM-Papst and not necessarily growing the fastest in that space, which of the company's highest-volume customers are growing the fastest or would you expect to be growing the fastest in 2027-28?

JF [00:37:40]: For me, I think just to name a few of them, Trane, I'm sure they are very well-positioned. There's JCI, which is very well-positioned. In Europe, I know the company, Güntner, they are very well positioned also in that. Carrier, I'm not so sure how much share they really have in data centre, but it's also important customers. I think these companies like Trane, JCI they are more on the outside part, on the chillers. On the inside part, you have Vertiv, in my opinion, much stronger than Nortek. I believe those companies will grow faster together with EBM.

RK [00:38:27]: Do you expect companies such as Vertiv or Trane, both on the chiller side and internal server and rack cooling side, to continue to acquire vertically-integrated fan capacity like this acquisition of EBM-Papst by Madison Air? Are there any other acquisitions that would be similar to continue competitively diversifying the supply chain?

JF [00:38:58]: I don't think so because all those companies, they are highly dependent at the moment from EBM or Ziehl-Abegg. Of course, Ziehl-Abegg is currently private-owned. That would be a potential if you want to secure the business, and that was also my estimation. When I heard that there will be an acquisition of EBM-Papst, I thought it would be a much bigger customer who virtually integrates to secure supply chain for fans for the coming years, but when I heard that Madison Air with Nortek, I was a bit surprised. For me, it would make more sense if some of the big players like Trane and JCI would have bought this. Will they buy somebody else? I don't think so because the two important players are really Ziehl and EBM. Therefore, I don't think that Ziehl is available for sale at the moment due to the ownership structure. Therefore, I don't expect this to happen.

00:40:01] Post-acquisition, what strategic equipment line and product rationalisation would you expect across EBM-Papst's 15,000-20,000 SKUs to increase profitability? What would your target SKU count be? Could 80/20 rationalise costs and generate needed production capacity? Alternatively, will continuous CAPEX be needed to smooth out and expand supply chains and footprint, as we've been touching on?

JF [00:40:40]: I would start the other way around. I think there are some markets with very low profitability. I think this, of course, I would exit first like the gas heating is a market which is very difficult. Even heat pumps is very difficult. All the markets which request very high volumes on very few SKUs is always a difficult market for EBM-Papst because their strength is to have a huge portfolio and one-stop shop for all customers who buy a lot of different fans, so that's their big strength. Therefore, all the other markets, which demand for high volume and very low variance, these markets are difficult for EBM. This is, for example, the heating market, this is transportation market. For bus air conditioning or train air conditioning like this, you have really few references only with very high volumes. These are markets very difficult.

Residential, similar, but the residential market for EBM is not a typical US residential market. It's a European residential market, which has a specific demand for residential heat recovery systems. All those markets, I would say, are on the lower end of the profitability. Therefore, on the other hand, commercial air conditioning, in general and being part of that is data centre, those are really the markets where they are very well-positioned. If they want to grow, if I would decide, I would put all my efforts into these markets to grow. There is a refrigeration market, which is a very stable market and always interesting as well. I think, therefore, that's definitely a market I would keep as well. On the others, I would put a question mark and say, "Okay, put more the efforts in the high profitable commercial air conditioning and not in the others."

00:42:51] Aside from new equipment sales, does EBM-Papst have a strong aftermarket or digital solutions presence?

JF [00:43:08]: Not yet. In general, the aftermarket is mainly covered by the OEM for the HVAC equipment manufacturer itself. For example, Trane or JCI, they do control the aftermarket even for the fan. If on a chiller, a fan fails, the end-customer typically approaches Trane to get a spare part. Get a spare part of fan and those manufacturers like Trane, JCI, the OEM equipment quite often, they have a specific design, which they buy from EBM-Papst. Quite often, they even have an exclusivity so that EBM-Papst or other players in the market are not allowed to sell this specific reference to any other customer, so also not as spare parts. That's why these manufacturers, they control the spare part market. Therefore, this is not a market or a very small market for EBM.

On the other hand, what they are now developing and where there is a significant potential is more the retrofit market. That means you have, for example, air-handling units being in the market or operating already 10 years and more with fans inside with quite low efficiency. To replace these fans with higher efficiency, you get a payback even within less than two years. That's a significant market. I know only in Germany, there are more than 30 million air-handling units installed and still running. There's a huge potential to upgrade those units with high-efficient fans and to create a kind of aftermarket retrofit market, but it's not really a spare part market.

RK [00:44:55]: Can EBM-Papst only upgrade or retrofit its own existing fans?

JF [00:45:02]: No.

00:45:02] Could EBM-Papst upgrade equipment from other companies?

JF [00:45:07]: I would say there's even low possibility for their own products because already 20 years ago, they had a very high efficiency, but there have many products in the market. They are even belt-driven with old motor technology, old aerodynamics not being produced by EBM. Those are the target units which they want to address and upgrade to a high-efficient EBM-Papst solution.

This is really open there. There is no limitation that you can't change those products. You need a bit of sheet metal to adapt it. The EC fans, you can speed control, so you can also realise every operating point, which is necessary there. Technically, you can almost upgrade all air-handling units being in the market today. No limitation.

00:46:01] If you're a customer that owns many air-handling units, what would make you approach EBM-Papst or Madison Air? Would you do it through a distributor, through a different operator or direct? How does that happen?

JF [00:46:24]: Now EBM-Papst developed solutions on the one side, software solutions to easily calculate what you need to replace your existing fan in an air-handling unit. They also have sales teams who consult customers, operators of air-handling units, how to change the fan and make quotation, so they have their own sales. They build up an own sales network to approach exactly the customers, building owners, operators of this air-conditioning solutions. There are also dealers or other customers or companies who are doing this kind of consulting work and then buying fans from EBM and selling them to a customer. The target from EBM, but also other manufacturers, is to build up their own sales organisation to serve that market. The ambition is minimum 10% of their annual turnover. If they reach EUR 3bn this year, I think the ambition in about 2-3 years would be about EUR 300m of turnover in retrofit.

00:47:39] I know that Madison cited EBM-Papst's installed base of about 250 million fans as a massive runway for recurring aftermarket and retrofit revenue. How large of an opportunity would you expect that to be over the next 2-3 years in terms of profit? What is your confidence level that it's actually seized by the company?

JF [00:48:07]: I don't see that opportunity that this installed base for EBM-Papst will be after-service business. I don't see that. As said, the OEM manufacturers handle these spare parts themselves. The EBM-Papst's fans installed, they are already at high efficiency, so why should customers change that if they don't have any benefit of it? Of course, at the end of lifetime, the fan fails and you need to be replaced, but that's a market which is covered by all the customers from EBM. They will not have significant access to that market.

00:48:47] Madison Air management has guided about USD 160m in run-rate cost synergies by year three after the acquisition of EBM-Papst, citing materials, freight and VAVE [value analysis/value engineering]. How realistic do you think it is to target USD 160m out of the supply chain and direct materials, especially when North American sourcing costs are elevated? The company is trying to deploy that supply chain, and we're seeing tariff volatility introduced in the mix.

JF [00:49:19]: I think the big potential I see is in reducing transportation costs and probably slightly tariffs. This, in my opinion, is in the range of USD 20m, maybe being optimistic, USD 30m, but never on the USD 160m, to my opinion. I don't see this potential to take out costs of the organisation. As I said, with producing locally, you can reduce transportation costs. You will not source cheaper. That's I'm sure. You will just source locally and avoid transportation costs and, of course, tariffs. Overall, I don't see this USD 160m at all.

00:50:01] Are there any specific subcomponents that are or will be the most critically constrained, especially if Madison Air tries to secure long-term capacity against larger major companies, such as Eaton, Schneider or Vertiv?

JF [00:50:21]: I think it starts with a relatively simple part. For example, it's called a finger guard. The EBM-Papst's finger guard to protect that you really can't touch the impeller or the heating part is a specific one in most EBM-Papst's products because it's holding the motor as well. It must be very robust and stable. Even in Europe, there are only 2-3 manufacturers being able to produce that and EBM-Papst struggle the last 20 years to find any local supplier. That's one huge problem for them they are having on these parts. Now clever development was to really produce now new axial impellers who do not need this kind of finger guards anymore. That's why it might be easier then to find local sources with the simplified parts.

There are quite some sheet metal parts even very difficult to find there because you need to have a special technology to shape the nozzles of a fan in a way that you have the highest efficiency, low noise. It starts from sheet metal part. It starts from plastic moulding parts, also very specific because these impellers, you need plastic moulding parts or parts because they rotate and they see a lot of stress. That's why it's not a simple part, which is stable and not moving, but the impellers, they are moving. They are rotating at 2,000-3,000 RPM. Therefore, you must have a specific plastic technology and design to ensure that they are robust enough to run at these speeds. This is not really a simple part. It sounds simple, but it's complicated to find local or good suppliers.

00:52:23] I believe Ziehl-Abegg is the only other major supplier on par with EBM-Papst. Do you think that the company is investing in its North American supply chain and increasing capacity as well? Do you think that it might have the ability to be quicker, as a private, family-owned company?

JF [00:52:49]: No, I see the advantage now with the acquisition. Probably it's easier to generate cash and to invest faster for EBM compared to Ziehl-Abegg. I think private owned German companies are typically a little bit more conservative in investments and not thinking too big. I believe now with this acquisition, this will help EBM to be a bit faster than Ziehl-Abegg.

00:53:20] Would you expect any major market share shifts over the next 2-3 years? What do you see as a best- and worst-case scenario for EBM-Papst's performance as it's integrated into Madison Air's larger portfolio?

JF [00:53:42]: I think my expectation is that they develop better than Ziehl-Abegg. I know that Ziehl-Abegg is having some trouble at the moment. With this acquisition, yes, I think it helps them just to scale operations faster than Ziehl. I believe they will win some share, but not 20-30%. I would guess something maybe 10% or 15% market share, they will win over Ziehl, but that's it to my expectation.

00:54:13] Why is Ziehl-Abegg struggling at the moment?

JF [00:54:19]: I don't know exactly, but I know customers from Ziehl who are highly frustrated. They don't get any volumes for the next two years. I know that they have some software issues. I'm not sure whether this is really the key root cause of their problems today. Obviously, they struggle somehow with supplies and to ramp up production. I'm not 100% sure what is really root cause. One is definitely the software problems they had, but is this the only one? I don't know.

00:54:53] Are there any internal challenges existing with EBM-Papst that could sideline Madison Air's focus or require more than expected committed time or capital resources?

JF [00:55:08]: For me, the question will be, will they exit some of the markets, as mentioned before, maybe transportation, maybe gas heating. They might have the ambition to quickly exit those markets. The constraint is that EBM has long-term contracts with customers in these markets. Whether it's in the heating market for some customers, they have two- or three- or even four-year contracts. It will be not so easy to quickly exit some of the markets. I'm not sure whether Madison is really aware of that because that's how that market acts. They are long-term commitments and contracts. Therefore, an exit out of some markets is not so quick as probably expected by Madison Air.

00:55:54] We've touched on data centres quite a bit. Are there any other major commercial tailwinds or headwinds that we should be appreciating about EBM-Papst or its integration into Madison Air? Is there anything else that might be overlooked or underappreciated by analysts and investors looking at Madison Air long-term?

JF [00:56:18]: In all the press releases I read now during that acquisition, I never heard about this new development EBM-Papst is working on, which is called high-speed compressors. They're investing quite some money in this product, and you can read about this in quite some publications, which has a huge potential to completely change the whole air-condition refrigeration market. These are high-speed compressors running at 200,000 RPM, having significant advantages, very compact, very small, but none of the publications, I read anything about this technology. It will still take more than five years to industrialise it. EBM is investing a lot in that, but I never heard about it, but there is definitely a huge potential. This product, if they are able to finalise the development and industrialise this properly, it has a market potential of at least EUR/USD 1bn or EUR/USD 2bn in compressor, which is a completely new market for EBM where they're not in today, they are only in fans and blowers.

That's a technology they are developing. As I said, it will still take about five years down the road to industrialise it or bring it to the market. If they are successful, this could be really a big game-changer. I'm not sure whether Madison knows about or I think they know about it, but whether they calculate with it or not, but as said, it will take several years to get this to the market.

RK [00:58:04]: Why such a long commercialisation runway? Is there anything that can be done to commercialise it faster than five years, for example in 1-2?

JF [00:58:17]: It's really a complicated technology. It runs without ball bearings anymore. It only turns on a cushion. You need to manage the whole thermal system to get heat out of the motor, but on a very homogeneous way to avoid because you are talking about micrometres or even nanometres. Very precise production even with largely changing temperatures. That's a challenge to develop that. There's no similar product existing in the market so far. That's why there's still a question mark on whether they will be able to do this. The idea is there. I think there is a good likelihood that they can do this, but of course, to industrialise this, it's not a win deal so far. That's my expectation that it minimum takes five years to what I know from this technology, there is a lot of testing and trial and error still necessary. Therefore, I don't think that this can be done faster.

RK [00:59:29]: I appreciate your time. Let me just close by saying thank you again for your input and your insight, and thank you for joining Third Bridge's Interview today. It's been a pleasure.

JF [00:59:40]: Thank you. It was a pleasure to talk to you. Have a nice day as well.

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