PE players cashing in on energy services consolidation

With Europe's debt crisis deepening, economic conditions are impeding corporates, forcing them to cut costs continuously to stay competitive. Energy management services companies are providing a solution that meets the dual need to increase efficiency, while improving companies' ESG balance. This represents an opportunity for private equity to invest along the supply chain and increase the vertical integration within the sector. According to Robert W Baird, the field of energy services is a rising star of the energy sector at the moment.

Energy services companies are concerned with managing the energy consumption and carbon footprint of their corporate clients. The immature management and services end of the fragmented energy sector has grown rapidly in recent years. Research from Baird states, "The revenue figures for the energy services market in 2008-13 show CAGR of 8% in Europe."

"The main drivers in the energy services field are energy, cost and volatility. From a corporate social responsibility and carbon footprint perspective, this is very interesting for companies. In times of austerity, they will want to manage their energy costs efficiently," says Jonathan Harrison, managing director at Robert W Baird.

The energy services business includes consulting and implementation of efficiency-enhancing measures and procurement. The carbon footprint of a business has developed from an intangible buzzword to a serious concern of company governance.

The latest private equity-backed deal in the field was the sale of Lyceum Capital's M&C Energy Group to trade buyer Schneider Electric. The transaction was estimated to be worth £90m, almost £70m more than when Lyceum acquired the firm in 2009. Schneider Electric is a global specialist for energy management and one of a number of large global players buying smaller, independent service providers.

"For companies to understand their spend, they're interested in technology and measurement, and advice. We see consolidation interest across this continuum. M&C, for example, was private equity-owned and Schneider, the acquirer, is from the other end of the continuum. They are now taking a more strategic approach," says Harrison.

Europe's crisis, which is driving the need to cut costs, should drive up demand for energy service providers even more. Harrison stresses that cutting costs is vital to large corporations, especially in turbulent times.

Another private equity-backed energy manager that could be snapped up by a larger player in the coming months is Manchester-based Matrix, which was acquired by LDC in March 2010. Despite the relatively short holding period, Matrix is rumoured to be back on the market and may be the next trade sale in the sector.

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• Topics
• Investments
• Robert W. Baird
• Horizon Capital (formerly Lyceum Capital)
• LDC