Is this the year to sell your smart grid company?

[Jesse Berst]

A leading Wall Street analyst recently complained about the lack of consolidation in the smart grid space. It's true that the prolonged existence of too many suppliers can make a market noisy and confusing to buyers. Why aren't things settling down? Because of the "disconnect between what private companies think they are worth and what publicly traded companies are willing to pay."

Small companies, in other words, are holding out until they can increase their value. But that can be a dangerous game. Valuations go up and down according to perceptions of a sector's potential. If the bloom goes off the smart grid rose, small companies may be worth less. Likewise, small companies are more susceptible. Lose just one big client - or get slapped with just one long project delay - and your valuation can plummet.

Barring any wild cards, I think the peak will arrive in 2013 and may persist for a year or so. But that's just one guess. What's yours?

[Jim Warner]

If Wall Street is looking for consolidation then they clearly spent too much of their bonus money on hallucinogens. Consolidation is one of the last steps in a mature market after commoditization occurs. We don't even know if there is a market for Smart Grid yet. By that I mean most of the early benefits of Smart Grid that I've seen are largely aimed at energy companies as a means for them to operate more efficiently. Nothing wrong with that but with the exception of some markets in Asia and Europe, there is no groundswell of demand from consumers that I have detected. Regulatory pressure is a much greater force right now.

Yes there are some clever apps like energy usage monitoring but it's not yet a market force to be reckoned with. Same with any and all Smart Home applications. Nobody has cracked the code on a profitable business model. Lots of neat ideas but nothing that points to sustainable revenues.

I may be way off base - wouldn't be the first time so please fire back if you disagree. My gut tells me this is a solution in search of a problem.

[Edward Hinders]

I come a this a little different direction but wind up in the same place. I am our designated security officer with OATI and NERC. We don't have security standards much less designs for security in place. Given what I have seen on some of the hacks that have made the press like the FBI, Scotland Yard, CIA and others in the past couple of weeks no one seems to have their act together. What good does the smart grid do us if someone can hack in and feed garbage data to our Control centers. No one seems to remember the out of control generator at Idaho National Labs 5 years ago. If we don't have a plan for security what good does the smart grid really do us? Without a plan who do you know to buy to effectively consolidate. It is an open invitation for rogue elements to manipulate the system to their benefit. Imagine Enron traders having the opportunity to manipulate the market with bogus data.

[Tucker Twitmyer]

There is strong evidence in our portfolio of corporate and private equity interest that will lead to significant consolidations this year. We are about to begin a sale process for one company, after unsolicited approaches from more than ten smart grid, energy services, and private equity firms. They are out there, they have cash, are wiling to pay up for proven traction, and they are looking to move ahead of their competitors. Combine this with the transactions from last year and the continued good work of the SGIP, and 2013 AND 2012 could show as a wonderful set of exit years.

Valuations will be revenue driven. That is the reality of the energy tech world. Hold out if you've got good revenue growth prospects. Beware of being late to the party if you don't.

[Allan McHale]

Whilst the Smart Grid market is very fragmented one of the most encouraging findings from Memoor’s annual report “The Smart Grid Business 2011 to 2016” is that in the space of 5 years M&A have grown from $134 million in 2007 to $10.6 billion in 2011. Both the growth and now scale indicate the supply side is gearing up to meet the requirements for new technology and forecast demand for pure Smart Grid products and systems that could be worth a cumulative $2,000 billion over the next 20 years.
However M&A activity slowed down in the last quarter of 2011 along with strategic alliance announcements. The decline in activity is hardly surprising given that the sovereign debt crisis in Europe started to hit financial markets in August and liquidity and confidence has since seriously deteriorated. M&A activity across virtually all manufacturing industries has yet to recover from its fall in 2008. We believe that there are a substantial number of companies looking for investment in order develop their products that would be prepared to part with some or even all their equity, because they are having difficulty in raising cash from their existing sources. However the VC Companies are not keen to go for an IPO at this time, but would be keen for strategic public buyers to drop them a line.

Whilst the factors driving the massive growth in this fledgling business require restructuring and consolidation, confidence in the future has taken a hit. This negative economic outlook is likely to counteract some otherwise strong drivers for deal making in the Smart Grid business. As a result we have forecast that the value of deals will fall in value over the next 3 years despite the fact that the volume will increase. A more detailed analysis and forecast of M&A and where it is happening can be found on http://www.memooriblog.com/2012/01/s...-to.html#links