Harris Williams recently advised Franklin Energy Group (Franklin Energy), a premier provider of flexible energy efficiency and grid optimization programs, on its sale to Abry Partners.
Here, Luke Semple, a managing director in the Harris Williams’ Energy, Power & Infrastructure (EPI) Group, discusses what made Franklin Energy an attractive target for Abry Partners and shares his advice for other buyers interested in the space.
What makes this an appealing space for buyers and investors?
Demand side management (DSM), which incorporates energy efficiency, demand response and distributed energy resources (DERs), is serving an increasingly important role in the operation and reliability of the electric power grid.
As the economy enters yet another wave of electrification, whether led by the adoption of electric vehicles or the further electrification of industrial processes, DSM serves as a critical tool for utilities to manage their networks.
In addition to being more cost-effective sources of power load compared to other sources, energy efficiency and demand response are sustainable and help meet investor and consumer calls for more stringent environmental, social and governance (ESG) standards. These programs also allow utilities to delay or defer more costly alternatives, such as new power plants or investments in transmission and distribution (T&D) infrastructure.
What made Franklin Energy particularly appealing to its buyer?
Franklin Energy is a market leading DSM company with a national footprint and vertically integrated capabilities, which enables it to holistically serve its utility clients. It is one of the only players in the market that offers energy efficiency and demand response programs, product fulfillment, and an integrated customer engagement software offering.
In the utility services industry, the “stickiness” of utility clients often presents a growth challenge for businesses seeking to win new customers from the competition. However, Franklin Energy’s management team has an exceptional track record of organic growth across new and existing utility clients.
In addition, the company has successfully married that organic growth with a successful M&A strategy to expand its execution and service capabilities. The end result is a highly attractive platform to capitalize on the industry’s growth dynamics.
What advice do you have for other buyers and investors interested in the space?
While a good deal of consolidation has taken place in Franklin Energy’s core markets in recent years, there are still M&A opportunities for both large and small platforms in the space.
At the same time, there is a wide range of other businesses with exposure to the coming “energy transition” and to some of the broader themes that make the DSM market so attractive. Often, these businesses have direct relationships with end users instead of a utility client. Examples include demand response providers, energy service companies (ESCOs), providers of HVAC and mechanical services, and a broad range of other service providers to the built environment.
Whether buyers choose to focus on DSM companies like Franklin Energy or more end user–oriented businesses, they stand to benefit from strong, long-term tailwinds and steady growth.
Published September 2019