Earlier this month French building engineering giant Schneider acquired M&C Energy, the UK’s largest energy procurement consultancy (terms were not disclosed but it is rumoured to have paid around £90m). The deal was Schneider’s second major acquisition in the energy management/procurement space – it acquired Summit for $268m in 2011. This latest move comes just months after MITIE acquired Utilyx, another large UK procurement consultant, and about a year after Balfour Beatty acquired Power Efficiency. Consolidation of the procurement sector has been on the cards for a while; what is interesting about this current wave is that it is being led by trade not Private Equity. Why the sudden interest?
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The contention is that it reflects a broader trade interest in energy services. In the UK and US in particular a broad set of players are increasingly competing with each other by offering services that reduce energy consumption and/or carbon output. These players will lead the consolidation of the energy services sector globally and it is this trend that explains the current interest in procurement consultants. Players ranging from FM companies, to building managers, equipment providers, renewable energy suppliers and others will seek to position themselves as a one-stop-shop for reducing their clients’ energy use. As more firms jostle for this space they will find themselves increasingly competing with each other. The varied trade interest in energy management/ procurement consultants is an example of this – and this will continue. Giants like Honeywell and Johnson Controls have yet to make a serious play in the market – it would be surprising if they didn’t. In the public sector, construction and M&E firms with experience in PFI deals are likely to make a play for energy performance contracts. This will see them invest their own capital in energy savings schemes and be paid out over time from the savings the organization in making on their energy spend Specifically the interest in procurement consulting companies is driven by a desire to own and manage energy data. If you want to sell a product or service that reduces energy use, you must show how much you will save vs current usage, and demonstrate the savings by capturing data over time.
Procurement consultants, specifically those that have been snapped up by trade players do three things; they advise companies on when to buy energy contracts, they make sure a company has been billed correctly and they collect, manage and report on energy data and provide advice on energy saving options. The first two are high margin market niches but it is the last point that explains the trade interest. For Schneider, MITIE, Balfour Beatty and a host of other major trade players in the UK, US and elsewhere a key part of their service offering is a promise to deliver energy savings – energy data is critical to this
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This consolidation of the energy services space makes procurement and energy management businesses attractive, even if their procurement offering is non-core to those trade players doing the consolidating. In the procurement space, most of the scale players are now in trade hands. Those independents that remain are more procurement consultants then energy management businesses – and tend to have a more SME focussed client base – both of which dilute their appeal as bolt-ons. This is symptomatic of the energy services sector more generally. Trade players are keen to buy good businesses, but the sector is immature and there are only a limited number of players fitting their investment criteria. This should open the door for Private Equity.
Disclosure: PMSI have worked with AIM listed energy procurement and management business Inspired Energy Plc over the course of 2011 and 2012. We are also a shareholder of Inspired Energy
Written By: Jake Tyler
