Here are the lessons learned from the first round of consolidations, and how companies can successfully merge this time around.
Back in 2015, we noticed an emerging pattern that traditional power producers were following as they attempted to expand into the renewable energy market. At the time, a number of large utility players including NRG, Nextera, Edison International and Duke Energy had acquired independent power producers and developers in order to gain a foothold in distributed generation, with a focus on the commercial and industrial segment (C&I). We chronicled this journey in a blog titled, The 9 Lives of an Energy Company, which followed large utilities through their acquisitions and subsequent restructuring– which for some, did not end well.
The cycle, however, continues, as we are now seeing market consolidation happen on an even larger scale. A number of major acquisitions are underway in the utility and commercial solar sectors, including Engie (Innogy), AES (sPower), Mitsui (SunEdison), Gaz Metro (Standard Solar), JP Morgan (Sonnedix), and KKR (X-Elio)- just to name a few.
Energy companies aren’t the only ones competing. New market entrants, including the automobile industry, are now moving in. Tesla’s merger with SolarCity is likely the first of many mergers as EV penetration continues to grow. Banks, retail giants and Silicon Valley techies such as Google, Apple and Amazon are now large procurers of solar and wind energy. With more mergers and acquisitions on the horizon, there are important lessons to be learned from the first wave.
In the opinion of many, this first round of acquisitions failed to produce the intended investment thesis. Here are the top reasons for disappointing results from the first round of consolidation:
- Inability of management to integrate the fast-paced, entrepreneurial culture with the larger more bureaucratic culture of the utility
- Lack of sufficient IT infrastructure needed for both organizations to seamlessly collaborate, share data, information, and insights to make fast, accurate decisions
- Failure to implement a strong unified IT platform in order to manage the full investment lifecycle, and as a result, ending up with very high OpEx and no path to profitable growth
This next round of acquisitions can prove wildly successful, only if these mistakes are not repeated. The differentiator now will be how fast these companies can unify their people, processes, and platform. With a digitization strategy in place that orchestrates all three simultaneously to achieve operational speed and efficiency, companies are poised to become more agile in their ability to confront and take advantage of continuous change. Moreover, they are in the best position to emerge from the business transformation and digitalization process with a sustainable competitive advantage.