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Acquisitions, Alliances, IPO's & Fundings Indicate Strong Confidence in Smart Grids Future

The financial markets tell us that major corporations have the ability to implement deals and long-term strategies now, given their large cash build up and the availability of low-cost financing. According to data compiled by Bloomberg, the 1,000 biggest companies by market value worldwide have amassed about $2.87 trillion in cash and equivalents based on their latest filings. The figure excludes financial-services firms that the market expects to be more aggressive in view of the possible tax changes in the U.S... The rate on carried interest, or the share of profits that fund executives earn as part of their compensation, is slated to rise to 20 percent in 2018 from 15 percent currently.

So with a market flush with cash and driven by the need to off-load quickly, the Elster Group took the opportunity to go for an IPO this month. The price offering of one American Depositary Shares (ADSs), four of which represent one ordinary share of Elster Group SE, was set at a price of $13.00 per ADS. On the 5th October they were trading at $14.25 per ADS. This to us looks like a successful flotation but the market was disappointed saying that it had received a luke warm reception. So can we now expect a flurry of flotation activity including the much heralded SilverSpring Networks and Landis+ Gyr offerings. We suspect that both companies that have been waiting in the wings will regard this as their cue to realise the big pay-off. In addition to this we have identified a further 7 funding arrangements this month including Nexant and Coulomb raising $43m and $15m respectively. This also sends the signal out that finance is available for investment in smart grid suppliers.

We were anticipating a flurry of acquisition deals to be announced in this month but only 5 were disclosed and the biggest of these was not a pure play smart grid deal. The largest acquisition was the purchase of the UK based Chloride Group by Emerson for the sum of $ USD1.5bn. Chloride recently announced a profit before tax of £41.4 million on sales of approximately £325 million. Although neither is a pure play smart grid company both are active in controlling electrical power. Chloride joins global product brands within Emerson Network Power. Cisco completed its acquisition of privately held Arch Rock Corporation, a pioneer in Internet Protocol-based wireless network technology for smart-grid applications. Based in San Francisco, Arch Rock should accelerate Cisco's ability to facilitate the utility industry's transition to an open and interoperable smart grid by enabling Cisco to offer a comprehensive and highly secure advanced metering infrastructure solution that is fully IP and open-standards based. Cisco have yet to make a major purchase in the smart grid business and have adopted the same strategy used when entering the security and environmental building controls businesses of buying relatively new starts with leading edge technology but little exposure to the market.

ESCO Technologies Inc. acquired Xtensible Solutions, Inc. the thought leader in Enterprise Information Management Strategy, and a leading provider of semantic-based information management and integration solutions to the utility industry worldwide. Xtensible will be included as part of ESCO's Utility Solutions Group and will be closely aligned with Aclara Software in providing best-in-class software services and products. The remaining two deals included Marvell’s acquisition of the intellectual property and assets of Diseno de Sistemas en Silicio S.A. ("DS2"), a supplier of high speed semiconductor solutions for powerline communications and Constellation Energy’s agreement to acquire CPower, a leading energy management and demand response provider.

Eleven alliance arrangements were announced this month and this continues the strong trend that we have seen for both the growth in this aspect of developing business opportunities and in addition the number of majors that are joining forces to deliver smart grid products and platforms. Notably Cisco and Itron have formed a strategic alliance this month that they claim will advance the transformation of the world’s energy infrastructure. Together, the two will deliver a definitive 21st century Internet Protocol (IP)-based communications platform to the smart grid market.

Qualcomm have entered into an agreement to implement cellular connectivity into charging stations. The solution will allow ECOtality to use a commercial cellular network to manage its Blink brand charging station operations, transfer usage data, download firmware updates and publish availability to electric vehicle drivers in real time. Another communications inspired link up is Grid Net’s collaborating with Sprint to deliver a Smart Grid solution that leverages Grid Net’s software platforms to connect smart meters and smart grid routers via the Sprint 4G network. We expect more strategic alliances in this area during the next 12 months.

Schneider Electric and Verisae have joined forces on a new demand response offering called Demand Response 2.0 for commercial and industrial customers. DR 2.0 manages traditional load shedding, but also offers load shaping, which Verisae says "is the ability to adjust in real-time the dynamic nature of utility pricing and the resulting customer response. Telvent and Open Access Technology International Inc have formed a strategic alliance that integrates Telvent’s advanced data acquisition and distribution management smart grid solution suite with OATI’s webSmartEnergy solutions for smart grid and energy markets. This will enable utilities to balance network optimization and energy costs while maximizing regulatory, environmental, security, and customer service performance.

Elster announced that Électricité Réseau Distribution France (ERDF), a wholly owned subsidiary of the EDF Group and one of the largest electricity distribution networks in the European Union, has selected Elster to help it develop an interoperable and modular Smart Meter to support its future Smart Meter and Smart Grid initiatives. This news together with the French governments recent smart meter decree which accelerates the deployment of smart meter so that 95% of smart meters must be deployed by the end of 2016, should put a smile on the faces of the new shareholders of Elster.

Over the last 9 months we have shown that the supply side has been innovative in both developing the right technology and building the organisations that can deliver smart grid. But what about the demand side?

A report by The World Economic Forum has resolutely confirmed that smart grid is a key enabler of a worldwide low-carbon economy. However they are concerned that utilities are struggling to create the business case for smart grids as regulatory incentives often fail to provide the right incentives and reflect the low-carbon agenda. In addition they say that although global governments are increasingly viewing smart grid as a strategic infrastructure investment, poorly planned and executed pilots can set back the adoption of smart grids and negatively impact public perception. Whilst investment in a smart grid infrastructure is a no-brainer governments will have to ensure that the demand side can operate effectively because if not this business will fail to attain anything like its real potential.

Cisco, Constellation Energy, CPower, Elster, Emerson, ESCO, Itron, and more:

Acquisitions, Alliances, IPO's & Fundings Indicate Strong Confidence in Smart Grids Future + Schneider Electric