Never Fear, Retail M&A is Here  

Never Fear, Retail M&A is Here  

By Gabriel Phillips | GP Energy Management

In the face of regulatory upheaval, margin pressures, and the challenges of a limited number of markets, retail M&A has been robust this year including attractive valuations for sellers and cost savings for acquirers.  We believe that this should be very positive for retail energy provider sentiment and confidence.

Transactions announced publicly such as Spark Energy’s purchase of Verde Energy and Crius Energy’s purchase of U.S. Gas and Electric indicate strong interest from publicly traded purchasers focused on accretive earnings and boosts to their valuations in the markets. However, it still remains to be seen whether these purchases will really allow buyers to realize the cost savings lauded in public statements.  

Further, the interest in customer contract asset purchases has remained strong as well. Both privately held and publicly traded companies remain a strong bid for customer contracts, however, many are wary of high margin variable rate customer books and exposure to states with consistent regulatory upheaval impacting retail energy such as New York. Strategic buyers have displayed a strong preference for books or platforms leveraging digital marketing for customer acquisition and companies bundling energy contracts with other value added services. We have observed most transactions to be either for smaller books with less than 25,000 Residential Customer Equivalents (RCEs) or larger books with greater than 200,000 RCEs rather than books in the middle of that size range where the bid/ask spread for books between 25,000 and 200,000 RCEs has proven to be too wide for buyers and sellers to connect.

The market for M&A transactions seems far from contracting during this time and our sentiment is that this cycle will provide both buyers and sellers with new opportunities of expansion, reduction in risk, recapitalization, and strategic maneuvers. 

________________________________________________________________________________

Gabriel Phillips is Managing Director of GP Energy Management