New Energy Transition Exit: Generac acquires Enbala

First thing’s first: it is pretty rare for an energy transition M&A event to be on CNBC or Mad Money- but this deal did make primetime TV and the segment can be found here)

Strategic Rationale: Why Generac is now in the software business

Every Wednesday at 10am my house’s Generac generator roars to life for its 2-minute check. The generator is fed by a natural gas line and in the 2.5 years of living here it has been used twice to back-up the house when a storm knocked out the power lines. All the while, sitting in my garage is my Tesla. It has a 100 kWh battery pack mostly sitting idle and plugged in every day.

The cost declines of batteries and the continued progress of distributed energy resources like rooftop solar and at-home batteries mean that the residential back-up power system of the future will look quite different than the past. Instead of supersizing a generator we may just need a better software system to source and route power throughout a house during storms or peak energy hours. And the best software system will then aggregate a neighborhood of household profiles and work with the utility to manage area-wide load.

This narrative is exactly why Generac had to buy Enbala. Based in Waukesha, Wisconsin, Generac sells more than $2 billion of backup power generation products for residential, light commercial and industrial markets. Given how our power systems are decentralizing, Generac has a unique opportunity to capitalize on their distribution network and brand to be a key player in the distributed energy electric hardware and software market. The majority of Generac’s current generators are powered by diesel, gas, or oil. So in addition to building a battery business, the firm has to accelerate its’ software development. The CEO of Generac said this in the deal’s press release: “The deal solidifies Generac’s position as a market leader in Smart Grid 2.0 technologies and opens opportunities for the Company as a grid services provider.”

Enter Enbala, a leader in the Virtual Power Plant vertical

Enbala is a developer of a real-time energy-balancing technology designed to transform energy system operations. The company’s technology captures and aggregates available customer loads, energy storage and renewable energy sources to form a network of continuously controlled energy resources, enabling clients to control, optimize and dispatch distributed energy in real-time.

In simple terms, Enbala’s software helps market participants (utilities, large energy consumers) manage the increasingly distributed load of our power grid. This is called Distributed Energy Resource Management, or ‘DERMS’

Enbala was founded in 2003 and is based in Denver, Colorado. The company’s CEO, Bud Voss, has been at the helm since 2014.

The Financing History

There are a few “fasle-starts” in Enbala’s history that resulted in a recapitalization somewhere along the line. While data shows a 2003 founding, the company’s trajectory meaningfully changed when Bud Voss took the CEO job. With Bud leading the company, Enbala raised about $38M since 2014. The most recent round was an ~$8M Series B-1 with a post-money valuation of $60M. Existing investors included: ABB Technology Ventures, GE Ventures, National Grid, Obvious Ventures and ZOMA Capital.

The Exit

While the exit price-point was not given, it is widely accepted that investors made a nice return on their capital – although that may have been preference driven. Using the last post-$ valuation of $60M as a reference, I am going to assume the purchase price was somewhere between $50-70M. The revenue profile for the company was not detailed but I suspect that Generac paid a very sizable multiple given the strategic and complementary importance of the Enbala asset as detailed earlier.

What are the themes?

1- These businesses take time. A 2003 launch with a 2014 re-launch is a long horizon.

2- Remaining capital efficient is paramount. Most VC investors aim to achieve at least 3x+ cash on cash return. With an upside $100M transaction, this means you would target $30M of invested capital.

3- The buying universe is expanding! Generac is now in the software business. This isn’t your grandpa’s generator company anymore…

M&A Tracker

The link to the updates Energy Transition M&A tracker can be found here.