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Spark Energy Acquires Multiple Retail Suppliers Encompassing 335,000 RCEs; CEO Hopes More Acquisitions To Be Done

May 5, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Spark Energy is acquiring Major Energy and Provider Power under separate transactions, encompassing about 335,000 residential customer equivalents (RCEs)

Specifically, Spark and National Gas & Electric, LLC, an affiliate, have entered into a purchase and sale agreement for the acquisition of Major Energy, including Major's electricity and natural gas supply businesses and Respond Power, encompassing approximately 210,000 RCEs. The transaction does not include MES Solar, LLC.

Major Energy said that the deal between National Gas & Electric and Major Energy is worth up to $80.0 million plus adjustments for working capital. National Gas & Electric closed on the acquisition of Major Energy on April 15, 2016 and has since been preparing the company as a dropdown to Spark.

Major Energy serves electricity and natural gas customers in eight states, and will add fifteen new utilities to Spark's footprint.

Spark will maintain Major Energy's management team for at least a three-year period, with several earn-out provisions

Spark will maintain the Major Energy and Respond Power brands and will continue to market under those brands

Spark will be issuing $40.0 million of shares to National Gas & Electric, LLC as consideration for the upfront purchase price for Major.

Spark separately entered into a purchase and sale agreement for the acquisition of all retail business operations of Provider Power, LLC, representing approximately 125,000 RCEs. Under various brands, Provider Power sells electricity primarily in Maine and New Hampshire -- both new states for Spark -- and also in Massachusetts. The Provider Power acquisition expands Spark to nine new utility service areas. Spark will retain the Provider Power brands.

The purchase price for the Provider Power acquisition is $28.0 million, plus an earn-out that is subject to performance metrics for the first year. Spark will retain Provider Power's management

Spark is financing the purchase price payable at closing through the issuance of 900,000 shares to Retailco, LLC for a total of $18.0 million.

The combined acquisitions bring Spark's total RCE count to approximately 750,000

In addition to these acquisitions executed by Spark, EnergyChoiceMatters.com exclusively reported that Spark affiliate National Gas & Electric recently acquired Bargain Energy, and a residential book of customers in the Northeast from Entrust Energy. Nathan Kroeker, Spark Energy's President and Chief Executive Officer, said that the Bargain Energy and Entrust Northeast residential book acquisitions by National Gas & Electric have not been set for a dropdown to Spark at this time, as National Gas & Electric works to grow the relatively small portfolio, including through more small book purchases, prior to any potential dropdown.

Kroeker told EnergyChoiceMatters.com that Spark is able to be prodigious in winning acquisitions currently because there are, "not many buyers right now," in the market. There were a lot more buyers in the room in prior years, Kroeker said.

Spark's capital, balance sheet, and the benefit of a publicly traded stock as currency positions the company well to win acquisitions, Kroeker said

Additionally, while in recent years bid-ask spreads have kept suppliers interested in selling from completing transactions, Kroeker said that retail suppliers that have had good success in building books of customers are now facing challenges prompting sales to close -- "for whatever reason [these suppliers] are running out of capital or have other constraints on their continued organic growth," Kroeker said.

"I'm hoping there's more to be done," on the acquisition front, Kroeker said

Kroeker stressed that Spark continues to pursue organic growth, and that the Major and Provider Power acquisitions are seen as strong platforms to continue those suppliers' organic growth and expand Spark's organic growth into new areas, which is why the successful management teams are being retained.

Still, when Spark sees acquisition opportunities at very attractive multiples, such as for 3 to 3.5 times EBITDA, Spark has the capital to execute such accretive acquisitions, which allow for significant growth in a short period of time

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