Smart Grid Market Consolidation and Venture Capital Trends

In the space of just six years Smart Grid Mergers and Acquisitions spend allocation has grown from humble beginnings of $138 million in 2005 to $11.2 billion globally in 2011, according to Mcom Capital. This is a strong indicator of both the economic and structural commitment of multinational corporations to take long term investments in the primarily regulatory driven rollouts of Smart Grids worldwide.
Published: Thu 03 Jan 2013

In the Meter Data Management market for instance nearly all the major vendors have been acquired. This includes Siemens acquisition of eMeter, Landis and Gyr’s acquisition of Ecologic Analytics and Elster’s acquisition of Energy ICT. 

In the same time frame there has been over $2 billion in Smart Grid Venture Capital investment, including at least 3 major IPO’s. It is clear then that the technological advancements forming the proposed low carbon economy from this 120 year old electric transmission and power industry are yet to fully unfold.  

Instead a more gradual evolution of products is occurring with both small ‘garage’ entrepreneurs and large multinational corporations proactively anticipating and in some instances reacting to customer demand in the preliminary stages of advanced smart grid infrastructure. 

For example in the Smart Communications market Siemens co-invested $16 million in a venture capital funding round for startup broadband power line carrier outfit Power Plus Communications in July 2012. And in February 2012 Siemens co-acquired Wimax hardware communications manufacturer RuggedCom for $440 million. 

So the question remains what value is there in Smart Grid M&A activity?

A good place to start to answer this is with 2 recent large acquisitions in the smart meter hardware space. In June 2012 Elster was acquired by British investment company Melrose Plc for $2.3 billion which equates to a multiple of just over 10 times EBITDA and a 49% premium on its closing stock price. In contrast Toshiba paid 10.7 times EBITDA for the rights to acquire Landis and Gyr, a fellow smart meter hardware manufacturer, in May 2011 according to Deutsche Bank estimates.  

So there was a considerable premium paid in both instances suggesting large and sustained embedded growth in the final acquisition price. (CVC partners bought Elster for $1.5 billion six years ago from EON, a hefty return for investors) 

In the future it is likely we will continue to observe the trend for multinational engineering conglomerates like Siemens, ABB, GE, Alstom and Schneider Electric participating heavily in this field towards a more vertically integrated Smart Grid marketplace.



Reproduced with kind permission by Siemens: