Market and M&A trends in energy efficiency services

The energy-as-a-service (“EaaS”) market has created an evolving ecosystem of companies performing a wide range of functions.

By Neil Churman, 7 Mile Advisors October 31, 2017

The evolution of energy efficiency services and more recently, the energy-as-a-service (“EaaS”) market, is fundamentally changing the way companies and individuals generate, buy, and consume electricity. Things like rooftop solar panels and wind turbines have been around for quite some time, but recently power generators, high volume commercial and industrial consumers, and even individuals are reshaping the industry in the way they think about their energy portfolios. Companies providing energy efficiency and EaaS services are filling and important place in the market, bridging the gap between the objectives set by these groups and the achievement of them.

Broadly speaking, companies engaged in energy efficiency services perform a wide range of functions, ranging from engineering and sustainability services, to program and asset management, to customer and consumer engagement, to energy analytics and big data, to performance contracting and financing. Companies playing in the marketplace range from major government contractors like Lockheed Martin down to start-ups with just a few employees. In recent years, programs and incentives at the federal, state, and local levels have increased popularity of, and provided incentives to companies and consumers to engage EaaS providers to assist them with designing and implementing energy plans and programs. In a recent report, market research firm Navigant Research estimates that the EaaS market among commercial and industrial customers alone will grow to more than $220b by 2026.

Within this rapidly growing market, there is an evolving ecosystem of companies including:

  • Engineering & consulting firms: Providing MEP engineering, commissioning, and sustainable design for building and plant owners
  • Strategic consultants & program managers: Designing and implementing efficiency programs on behalf of utilities
  • Marketing & digital agencies: Supporting consumer and customer engagement for energy programs
  • Energy services companies (ESCOs): Engaged in energy performance contracting, which leverage cost savings from energy efficiency technologies to finance the installation of that equipment
  • Big data & analytics companies: Analyzing data around energy consumption and costs to help maximize efficiency.

Within the space, there is a diverse group of public companies serving the sector. Some of the smaller players in this group, such as Willdan and Ameresco, represent more “pure play” energy services providers, while some of the larger ones, like Navigant and ICF, have a significant component of their offerings within the space.

Gross profit among this group is on average 30%, ranging between just north of 10% and just below 50%. Aggregate valuations among this group have risen recently, climbing to nearly 15x Total Enterprise Value (“TEV”)/EBITDA and more than 1.1x TEV/Revenue as of September 2017. These valuation levels have contributed to recent mergers and acquisitions (“M&A”) transaction multiples at premium multiples. For example, Itron’s acquisitions of Comverge and Silver Spring Networks transacted at 1.7x and 1.9x TEV/Revenue, respectively. Additionally, TRC recently went private with New Mountain Capital in a deal valued at 1.3x TEV/Revenue and 13.9x TEV/EBITDA.

The ecosystem continues to evolve as companies carve out their own unique service offerings. Many firms have looked to M&A as a means of advancing their position within this growing market and bolstering capabilities. Over the last few years, M&A has played a prominent role in the space. Going back to just last year, some of the most notable transactions in the space include:

  • Oracle’s acquisition of Opower, a customer engagement and energy efficiency cloud services provider, focused on serving utilities
  • NV5’s acquisitions of SebestaJBA Consulting EngineersEnergenz, and RDK Engineers, all of which advanced NV5’s position in MEP engineering, commissioning, and energy services
  • The merger of Franklin Energy services with AM Conservation Group, combining two leading providers of energy efficiency program administration and demand response services. The company is backed by private equity fund Kohlberg & Company.
  • Willdan’s acquisitions of Genesys Engineering and Integral Analytics, further advancing their position in both the engineering and data analytics aspects of the sector
  • Itron’s acquisitions of Comverge and Silver Spring Networks, expanding capabilities in demand response, IoT, and smart grid solutions
  • CLEAResult’s acquisition of Green Team Energy Services, adding Green Team’s DSM Tracker SaaS solution to CLEAResult’s offerings

The proliferation of M&A activity within the rapidly evolving sector is a direct result of companies seeking to capitalize on growth opportunities with new and existing customers in the ever-changing market place. The pace of M&A is likely to increase as the market continues to mature.

Neil Churman is director at 7 Mile Advisors. 7 Mile Advisors is a CFE Media content partner.

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