ALLCASTLE PRINCETON + Toshiba

A Smart Time to Exit Smart Meters as IP-Based Services Start to Muscle In

This month saw the first billion plus acquisition of a pure Smart Grid company with Toshiba’s purchase of Landis+Gyr for $2.3 billion .The owners of Landis+Gyr, the Australian investment group Bayard Capital announced over a year ago that they would go for an IPO within 2 years. It was therefore no surprise when rumors started in April that strategic buys were being considered from a number of suitors including GE. With the exception of GE all the other traditional electrical giants do not have a smart meter business so the odds were always in favor of one of them finding this buy irresistible. This sale was always going to be contested, as Landis+Gyr are the number one producer of electrical smart meters and have the widest exposure to world markets.

Toshiba was not thought to be the most likely buyer but they were more prepared to dig deep into their pockets and bring a big smile to the Australian / Irish faces of the O’Reilly dynasty (being the major shareholders). Landis+Gyr a private company was thought to have earned about $200 million on about $1.5 billion in annual revenues in the last year. That puts a $2.3 billion price in the realm of long-term investment. But this strategic buy should allow Toshiba to squeeze a lot more value out of L+G by integrating its existing technologies and utility projects into their own lines of business. Toshiba is a huge player in power and grid systems, alongside Mitsubishi and Hitachi, particularly in the Asian markets.

Landis+Gyr, employ approximately 5,000 people, and have in recent years seen frequent ownership changes. In the 1990s the company formed part of Switzerland’s former Elektrowatt group, before going to top private equity group KKR and then to Siemens, Europe’s largest engineering conglomerate. In January, Landis+Gyr was chosen by the State Grid Corporation of China to supply more than 10,000 commercial and industrial advanced electricity meters for 6 provinces in what will be the world’s largest smart grid.

In 2004, it was bought by Bayard. The Australian investor’s founder and chief executive is Cameron O’Reilly, son of the Irish billionaire Tony O’Reilly.

This seems like a good time to sell as demand for smart meters is expected to peak in 2018 after a tremendous run of growth and has been a major recipient of stimulus funding over the last 4 years. Smart meters are synonymous with smart grid to the extent that it is regarded as the cornerstone of its development. However there is a growing view out there that demand response and pricing signals to homes and businesses can be better achieved via the internet.

Vineyard Power on Martha’s Vineyard, the island off of Massachusetts’ Cape Cod, is involved in a pilot program with GE, utilizing GE’s Nucleus energy management system and the company’s Brillion smart appliances. So far, the pricing signals are simulated and based on regional wholesale electric rates.

The Nucleus energy management system passes this information along to the GE smart appliances, and they can delay a cycle, depending on the cost of energy at the time. Homeowners maintain the option of overriding a delay. So in this case the Internet is superseding AMI (Advanced Meter Infrastructure) meters, through a home area network that is connected to the Internet.

Providing such IP-based services over the net would require some level of energy management within the home, such as what’s being done with GE’s Nucleus systems on Martha’s Vineyard. That means more of an emphasis on whole-house energy management systems with possible tie-ins to other systems such as security, lighting control, HVAC, motorized shading and home control and automation - whereas smart meters could communicate pricing and other signals directly to smart appliances.

Home energy management systems could also offer homeowners more options - such as more sophisticated levels of preprogrammed preferences than are more likely to possible via basic smart meter-to-smart appliance connections. For example, whether to turn on an appliance might be dependent upon not only a signal being received from the utility but on the amount of energy that has already been consumed in a home that day, week or month.

It would appear that electrical utilities are not particularly interested in using this alternative, they want to be assured that they can count on the proper responses to control and balance demand and they are now committed to the smart meter solution. However the IP-based energy management system is a practical, and in many cases more cost efficient, solution.

We have noted a number of acquisitions over the last 6 months where the rationale has been to bring about a solution to interface smart grid with home area networks and energy management so we expect this technology will be used more extensively in the future.

This is just one factor that is driving consolidation. This month we indentified 7 acquisitions including Toshiba’s purchase of Landis + Gyr. This deal should ensure that consolidation in the Smart Grid business in 2018 will well exceed 2017. But on June 1st the news broke that Schneider Electric said it will pay about $2 billion for shares of Spain-based Telvent, so we can now be assured that 2018 will be a mega year for Smart Grid consolidation.

Bayard Capital, Landis Gyr, Schneider Electric, Telvent, and more:

A Smart Time to Exit Smart Meters as IP-Based Services Start to Muscle In + Toshiba