Navigant Research Blog

BIC-Angstrom Power Deal Signals New Phase for the Fuel Cell Industry

— December 7, 2011

It is fair to say that when BIC, the Paris-based company known for lighters and shavers and pens, announced on December 2 that it has acquired Vancouver-based Angstrom Power, there was some surprise.

Angstrom has had a commercial portable fuel cell for some time now, unlike many of its rivals, but what does BIC see in the fuel cell industry that convinced it to pay a rumoured $18.5 million in these times of economic austerity? And is this the first signal that 2012 will see a round of M&A in the fuel cell industry?

The companies involved in the fuel cell sector tend to be of two types. The first are daughter companies of large, stable, multinational companies, which can invest for a long term outlook and understand the time horizon to return on assets is longer for new disruptive products than for their traditional offerings. Companies such as UTC Power and Rolls Royce Fuel Cells clearly fall into this category. The other, much more common, company is the small startup, where a couple of engineers who’ve stumbled out of the lab after years of toil into the bright sunshine with their new technology. A company is formed, often at this stage supported by some form of government subsidy or angel investment, with the aim of taking the product to market. But many fuel cell startups have stubbornly stayed in the pre-commercial phase. A rule of thumb is that for every fuel cell company with a commercial product, there are another seven to 10 that are pre-commercial.

So why would a global multinational with a well-known product portfolio decide to sink many millions of dollars into a fledgling industry with a reputation for over-promising and under delivering? BIC’s answer is that it has been developing hydrogen cartridges for portable power devices for nearly a decade, and there are a number of complementary areas with Angstrom Power.

That being the case, will other multinationals look to acquire fuel cell companies? Almost certainly. I wouldn’t call them sharks circling, or wolves on the hunt, but large companies that have a history of forward-looking investment and feel the time is right to bring a fuel cell startup to the commercial product stage are likely to leap in. After all, when a company is bought outright not only is the IP transferred to the new owners, but they also control the route to market, marketing and distribution: three areas the fuel cell industry has almost completely failed at.

Looking at the three main sectors of transport, portable and stationary, we see that in transport most independent companies are in the supply chain, in portable there’s a mix between stack and system developers, and in stationary there is also a good mix of independent stack and system developers. With the increased global focus on clean energy and energy efficiency, the stationary sector is likely to see the highest interest from large corporations, at least for the next 12 – 18 months. Later, as we get closer to the roll out dates of volume fuel cell vehicles, it will make sense for a number of independent vendors to be rolled up into one end-to-end company. This transport M&A activity will likely kick off sometime late 2013.

The fuel cell industry for too long has been dependent on government handouts. Time to move on folks, get real and get commercial. And this is going to require selling up.


Energy Service Cos. in a Post-ARRA World

— December 6, 2011

Across the sectors of cleantech, from renewables to energy efficiency, the American Recovery and Reinvestment Act originally seemed to be a huge boost for the industry.  The actual outcomes have been more nuanced than originally thought, and one way to examine the act’s real-world effects is to look at some of the unintended consequences in the energy service company (ESCO) sector.

At the NAESCO conference in San Diego recently, I got a glimpse into the post-ARRA world for energy performance contracting.  Despite the millions of ARRA dollars dedicated to energy efficiency, the ESCO industry has not yet seen a big surge of contracts in the federal sector, and has experienced a relative lag in the MUSH (that’s the Municipal, University, Schools, and Hospitals sector, not mush) sector.  In fact, the average number of ESCO projects initiated this year is below the historical average, at least for the federal government.  As it turns out, the backlash of the ARRA may have in fact resulted in less business.  The reason: companies and project developers sat on their heels waiting for ARRA money to become available and get spent.  The result was a hesitation to initiate projects using the energy service performance contract (ESPC) model, and thus a relative lag in ESCO business.  As a result, the entire sector has experienced lower revenues than anticipated.  

Nevertheless, the value of the ESPC model has not been undermined in the federal sector.  In fact, many federal agencies used the down time to overhaul the procurement procedures that will open doors to the energy service procurement model and the ESCOs themselves.  The Army and the General Services Administration (GSA), which manages a significant amount of Federal real estate, are undertaking significant efforts to educate their staff on the intricacies of ESPCs.

That’s why energy service companies are optimistic about the outlook in the federal sector, despite the paradoxical lag caused by ARRA funding.  The U.S. military in particular will be targeting more ESPCs for integrated energy efficiency and renewable energy projects.  Likewise, look for innovative new technology pairings to begin to surface in the Department of Defense and through the U.S. General Services Administration as it embarks on an experiment with net zero buildings.


Siemens acquires MDM Vendor eMeter

— December 5, 2011

Siemens announced today that it is acquiring eMeter.  The purchase price is not being disclosed and, since eMeter is privately held, both parties expect to complete the transaction within the month.  Is this a good move for the companies?

You could say that the due diligence for this deal has been ongoing for the past three years.  Siemens and eMeter have been strategic partners since 2008, so both know each other well and will have been collaborating under mutual non-disclosure agreements.  As an advanced metering infrastructure (AMI) systems integrator, Siemens knows all the AMI and meter data management (MDM) players well.  As a strategic partner, Siemens most likely has a good understanding of eMeter’s internal workings.

In July 2011, Siemens sold its enterprise IT operations to IT services provider Atos.  This transaction increased the size of Atos (which dropped “Origin” from its name) by about 50%.  Atos also took over Siemens’ own in-house enterprise IT business.  The transaction was part of Siemens’ effort to focus on its core capabilities while outsourcing non-core activities such as enterprise IT. 

Combining these three data points suggests a pretty straightforward rationale for the eMeter acquisition:

  • Siemens is focusing on its core capabilities. 
  • Siemens has significant AMI systems integration business. 
  • Siemens is now acquiring an MDM vendor.  

Could Siemens next acquire an AMI vendor?  Perhaps.  But selling AMI is quite a bit different from selling MDM.  AMI deals are capital intensive, with thousands or millions of smart meter endpoints and a complex communications infrastructure.  If home energy management is included, the proposal becomes dizzyingly more complex.  MDM is a more traditional software and services play, with typical enterprise components necessary to extract and store data from head-end systems, but very few endpoints to manage.  So while Siemens could make a next move directly into AMI, this would require quite a bit more consideration, and would most likely entail acquisition of a publicly traded corporation.  So that next move, if it comes, may not happen as quickly.

This looks like a good deal for both parties. For Siemens the deal collapses part of their smart metering supply chain, so that they no longer have to pay eMeter’s margins to install the MDM software.  In the Pike Pulse Report:  Meter Data Management, we wrote that “eMeter has done the best job of any MDM vendor in terms of developing alliances with other key players in the market. It leads in MDM innovation with features like cloud-based MDM (with Verizon) and an MDM appliance (with IBM).”  We ranked eMeter solidly in our “Leaders” category.  Now Siemens has taken over that leadership position.  It is not necessary that this acquisition should affect either of those alliances with Verizon or IBM.

For eMeter the benefits are significant.  In the same report we also wrote, “Perhaps the only noticeable area for improvement for eMeter would be a stronger global presence… Although eMeter will clearly be at a disadvantage to large publicly traded companies when discussing staying power, that should not negatively impact its ability to win new business.”  eMeter has just solved both those problems with a single transaction, and gained access to significant financial and sales resources in the process.


U.S. Now an Oil Exporter

— December 2, 2011

I did a double take when I saw this headline on the homepage of The Wall Street Journal: “U.S. Nears Milestone: Net Fuel Exporter.”

“U.S. exports of gasoline, diesel and other oil-based fuels are soaring,” the newspaper reported, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.”

Really? Here are a few highlights from the WSJ’s story:

  • A combination of booming demand from emerging markets and faltering domestic activity means the U.S. is exporting more fuel than it imports, upending the historical norm.
  • As an overall exporter of fuels made from crude, the U.S. now has greater influence in the global energy market.
  • The U.S. will not lose its “net exporter” tag anytime soon.

While many of us weren’t paying much attention, people at energy companies saw a challenge and found new ways to meet it, leveraging new technologies for more efficient drilling amid a shifting global energy market.

This means the energy picture may not be so gloomy after all. Clearly, this does not mean we should ignore other fuel sources, including renewables. And it hardly helps solve the looming challenge of global climate change. But it does offer hope that solving long-term energy challenges, such as national energy security, may not be as difficult as once envisioned. That’s a good thing.


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