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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.
Analysis of the M&A statistics; shows that both the volume and value grew rapidly reaching 68 deals in 2010 having an average value of $155 million, whilst in 2011 some 49 deals had an average value of $225m. It also shows that cash financed up to 90% of the purchase price up to 2009 but this has fallen to an average of 70% in the last 2 years. Private Equity and Venture Capital companies have contributed little; IPO’s that the experts forecast would burst onto the scene in 2011 have fizzled out as valuations fell.
Forecast of M&A Business to 2016
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 over the next 3 years and will not return to 2011 levels until 2015, and will then continue its upward growth, being worth $12.23 billion by 2016.
IT & Communications Companies Move into the Smart Grid Space
Smart Grid badly needs the IT & Communications Companies technical expertise in collecting and analyzing the vast quantity of data that will be produced. In addition ICT companies have their eye on the Internet of Things (IoT) and this is why they have entered the Smart Grid space.
In 2010 the IT & Communications companies made their first forays into the Smart Grid space. In September 2010 Cisco completed its acquisition of privately held Arch Rock Corporation, a pioneer in IP based wireless network technology for Smart Grid applications. Based in San Francisco, Arch Rock should accelerate Cisco’s ability to facilitate the utility industry’s transition to an open and interoperable Smart Grid by enabling Cisco to offer a comprehensive and highly secure advanced metering infrastructure (AMI) solution that is fully IP and open standards based.
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 several large deals. 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.
Alliance & Strategic Partnerships
One of the strong features of the Smart Grid supply business is the activity in forming alliances and partnerships. In 2010 we identified 115 as opposed to 97 in 2011. All of the major Smart Grid suppliers have made a number of alliances with different companies; the main objective being inter operability of their products and solutions.
These alliances involve some of the worlds’ leading suppliers of IT & Communications hardware and software companies with the worlds’ major Electrical Transmission and Distribution Suppliers to bring about a common operating platform to communicate information and make it actionable. These alliances will undoubtedly play a major part in the development of the Smart Grid business over the next 10 years. In addition it could bring about the forging of some major Mergers and Acquisitions between these partners.