Large-scale energy efficiency is rapidly becoming a focal point for many sustainability programs throughout the United States and Canada.
In May 2011, Victoria announced a comprehensive new municipal energy-efficiency program aimed at saving its municipal government $750,000 over the next 10 to 15 years. With the effects of the global recession still fresh in the minds of businesses and governments, many enterprises and other government entities are looking to follow suit as the economy heads into another downturn during the second half of 2011.
In response to this new demand, B.C. energy services providers such as Willis Energy Services and SymbiAudit are rolling out new programs and offerings designed to streamline energy efficiency for large enterprises and government entities. The capital markets also have their finger on the pulse of this trend. Throughout the United States and Canada, investors are shifting their focus from capital intensive sustainability projects such as biofuels and solar sectors and moving to the less-capital-intensive energy-efficiency sector. As robust as the energy-efficiency sector is from an investment standpoint, we believe the sector will explode with M&A transactions across North America in 2011's third and fourth quarters as major managed energy services providers look for strong acquisition targets. That will generate tremendous cross-border opportunities for energy efficiency and managed services providers.
We expect demand for acquisitions to be driven by large managed energy service providers, whose customers across all market sectors are being affected by the rising costs of energy. While the services these companies provide are helping to alleviate some of these costs, their customers are starting to demand services that allow them to react almost instantly to cost-price increases and spikes in use.
In order to efficiently meet customer demand, many managed services providers are looking to acquisition as a quick solution. Building the technology from the ground up would be both expensive and time-consuming, and in order to deliver these services to customers as soon as possible, we expect the large energy services companies to gain the product capability through acquisitions.
In addition to increasing customer demand, France-based Schneider Electric's recent purchase of U.S.-based Summit Energy Services for $268 million (priced at approximately four times revenue) is likely to push other energy companies toward energy-efficiency acquisitions. This transaction is the strongest signal to date that the energy-efficiency sector is ready to go to market and is putting pressure on other large corporations in the energy services sector to respond strategically. Moreover, it's a strong indication that managed energy services providers are looking beyond geographic location and are willing to engage in cross-border transactions to acquire the best possible technology.
Likewise, energy-efficiency companies are beginning to look for potential acquirers. While energy-efficiency products may be ready to go to market, there are significant barriers to entry, including the expense and time required to establish a foothold in the crowded managed energy services market. While the product/technology is ready, many companies are having a hard time accessing large corporate clients that already work with established managed energy services providers. For B.C. companies looking to break into U.S. markets, and vice versa, the benefits of a cross-border acquirer include the added incentive of expanding their potential market.
Customer demand for real-time energy-efficiency technologies is likely to drive managed energy services providers to begin looking for deals in 2011's second half. Fear of losing out on the most scalable, easily integrated technologies will force competitors to act quickly, particularly in light of the Schneider/Summit transaction.
As in that transaction, we expect to see strong cross-border activity as acquirers seek out the most comprehensive, market-ready energy-efficiency solutions, regardless of geographic location. Moreover, we anticipate increased demand for data analytics providers with the capacity to collect and distill large quantities of real-time data.
With its strong clean-tech sector, we expect to see a great deal of cross-border interest in B.C. companies in the energy-efficiency space. In anticipation of increased deal volume and competition for top targets, we recommend that energy-efficiency providers in B.C. begin considering their financing and acquisition options.
