Deal Snapshot: Veregy

Veregy is an engineering and energy services company (ESCO) that creates pathways to eco-friendly building and systems optimizations, generating significant immediate and future energy savings. With more than 450 employees operating across the country, Veregy offers energy efficiency upgrades, performance contracting, commissioning, controls, engineering services, solar generation, and battery storage to clients in both the public and private sectors. Harris Williams recently advised Veregy, a portfolio company of Bow River Capital Partners, on its sale to Court Square Capital Partners.

Here, Luke Semple and Drew Spitzer, both managing directors in the Energy, Power & Infrastructure Group, share their thoughts on the ESCO space, what made Veregy such an attractive acquisition, and what other investors interested in this space should consider.

What makes this an appealing space for buyers and investors?

Semple: In the past decade, and particularly the past few years, environmental sustainability has become an increasingly bigger concern around the world. This has led investors to shift their attention away from traditional fossil fuel companies to those involved in the transition to clean, renewable energy. As the market has evolved, ESCOs have emerged as key players in the implementation of not only energy efficiency initiatives, but also on-site renewables, storage, and other distributed energy infrastructure. It’s all intended to move the needle on sustainability in a significant way.

Spitzer: The ESCO market is growing fast—it’s worth $8 billion to $10 billion right now in the U.S. alone. It also offers a lot of white space, as customers seek to control rising energy costs, figure out how to get the most out of outdated buildings, and roll out a broad range of sustainability initiatives. Think about aging buildings, for example. More than half of commercial buildings in the U.S. are 40-plus years old, and more than 80% of commercial buildings are at least 20 years old. Veregy works extensively with public schools. The General Accounting Office (GAO) recently released a study showing that more than 50% of public schools require an upgrade or replacement of major building systems such as HVAC.1 This kind of aging infrastructure requires the significant maintenance and repair activities that ESCOs provide.

What made Veregy especially attractive?

Semple: Veregy is a great example of platform-building in the ESCO space. The company was built through a series of acquisitions, and it has become very successful in leveraging best-in-class capabilities of each of the component businesses, and extending these capabilities across regions and the company’s customer base. That has driven exceptional revenue growth, profitability, and free cash flow. Even with all of this growth, the company still has a great opportunity for geographic and capability expansion through M&A.

Spitzer: The comprehensive solution mix Veregy offers is a differentiator. It provides a full suite of energy solutions across the building lifecycle—from facility services, engineering solutions, and distributed and renewable energy solutions, to smart building and systems integration and energy-efficient solutions. Veregy’s energy efficiency solutions are especially attractive to the many schools and municipal operations across the country, which are often housed in aging facilities but lack the budgets for capital improvements. Veregy can bring in the expertise and technologies to help these customers squeeze the most out of this outdated infrastructure without the cost associated with replacing existing equipment. Another thing that sets Veregy apart is its proprietary integrated building and energy management software system, which enables customers to further optimize their energy savings on an ongoing basis via real-time monitoring and controls. That’s something none of Veregy’s local or regional competitors can offer.

What advice do you have for other investors interested in the space?

Semple: There are great tailwinds in the ESCO space, and those will likely strengthen as the energy transition continues to gain steam. There’s plenty of potential growth in the market as well as a lot of white space for a new platform to tap into. Investors should consider how they can learn from Veregy’s success and build a robust platform that would allow them to capitalize on the areas with the strongest demand.

Spitzer: One particularly interesting play for investors could be building the capabilities to offer energy as a service—providing the expertise and upfront capital to implement and run the associated equipment and charge customers for only the energy they use. That would be a really attractive value proposition for the many, many potential customers with older facilities that could replace energy-inefficient infrastructure with new equipment without having to own it—and still get the significant energy savings.

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1. U.S. Government Accountability Office: School Districts Frequently Identified Multiple Building Systems Needing Updates or Replacement, 6/4/2020.
Published January 2021
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