Smart grid M&A activity - where the action has been (and where to expect it next)

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By Allan McHale

Memoori

 

As we noted in our previous installment, M&A activity reached $19.5 billion in 2012, almost doubling the value of deals in the previous year. That's based on Memoori’s latest research report The Smart Grid Business 2012 to 2017.

 

The chart below shows how the acquisitions broke down by type of business over the three year period from 2010 to 2012. In a nutshell over this period:

 

·         27 monitoring and control products companies were acquired, making it by far the most popular acquisition target. But this trend slowed down in 2012.  

·         Communications and networking products and services had 18 deals rapidly increasing its share of the business and a good proportion of these were companies external to the electrical transmission and distribution business (and also high-value transactions). In addition, wireless communications were in 11 deals over the three-year period and we anticipate this sector will continue to be a leading acquisition target.

 

·         AMI and smart meter companies accounted for 15 acquisitions over the three years, representing the fourth most popular target. Yet its share declined markedly in 2012.

 

·         Demand side management software had nine deals and was also down in 2012, but it should be noted that some companies acquired in our energy management and control software group also deliver these services but we only list them in one group.

 

·         Business enterprise software companies were targeted 15 times over the three years and demand for these companies more than doubled in 2012 despite the fact that the total number of deals was down.

 

·         Transmission and distribution equipment was involved in six strategic buys with the Areva sale in 2010 making $6.25 billion and Cooper Industries in 2012 realizing $11.8 billion. These two deals account for almost 45% of the total spend on acquisitions over the last three years.

 

·          Demand response automation accounted for nine deals over the three-year period and those independent companies that remain will be sought after.

In 2010 ITC companies made their first forays into the smart grid space. In September of that year Cisco completed its acquisition of privately held Arch Rock, a pioneer in IP-based wireless network technology for smart grid applications. Cisco, no doubt with the help of Arch Rock, brought out a number of new additions to its smart grid portfolio in the last quarter of 2012.

 

Taken together, they reinforce several themes:

·         The gradual merger of IT and OT

·         Cisco’s ability to pull products and expertise from other sectors and apply them to the smart grid

·         Cisco's ability to allow legacy systems to play in the IP world

·         Cisco's determination to deliver multiple applications over a single platform.

 

In September 2010, ESCO Technologies acquired Xtensible Solutions, the thought leader in Enterprise Information Management strategy, and a leading provider of semantic-based information management and integration solutions to the utility industry worldwide. Xtensible will be included as part of ESCO's Utility Solutions Group and will be closely aligned with Aclara Software in providing best-in-class software services and products. ECSO is a proven supplier of special-purpose utility solutions for electric, gas and water utilities, including hardware and software to support advanced metering applications and fully automated intelligent instrumentation.

 

In 2011, the number of external strategic deals declined slightly to take an 18% share but it included the largest and third largest deals that year. In January 2011, Qualcomm acquired Atheros for $3.1 billion. Atheros is a leader in innovative technologies for wireless and wired local area connectivity in the computing, networking and consumer electronics industries. The acquisition is intended to help accelerate the expansion of Qualcomm's technologies and platforms to new businesses beyond cellular and provide access to significant new growth opportunities including smart grid.

 

In 2012, external acquisition activity marginally declined to 16% and did not have any deals providing the impact made in the previous two years. Have they come to the conclusion that until they can see signs that the new business model is taking shape they will hold off?  Or have they consumed enough for the time being?

 

Allan P. McHale (CEng, MIMechE, MEI, MBIM) has spent 45 years in the energy and building controls industry -- from design and commissioning utility power stations in the 1960s to managing global sales and marketing operations and subsequently starting up three marketing consultancy operations all in energy related businesses during the last 20 years.

 

Memoori’s report - The Smart Grid Business 2012 to 2017 - is a definitive resource for the smart grid industry, combining clearly defined market sizing statistics, a review of the structure of the supply side and financial analysis of M&A and Investment opportunities. It is available for purchase in the SGN Research Marketplace.

 

Read more from this series...

Smart grid market outperforms in 2012 (but the future looks less bright)

Why 2012's smart grid growth isn't sustainable without a new business model

Smart grid touchstone: accommodating variable renewable energy

Smart grid M&A growth trend a sign of supplier and investor confidence

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