Retail Energy M&A Advisor Seeing Up To $800 Per RCE In Deals Being Worked
April 25, 2019 Email This Story Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
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Retail energy veteran Preston Ochsner, of Ochsner Interests Inc., told EnergyChoiceMatters.com that he is working on several M&A deals in the retail energy space, acting as a broker, and provided the following observations concerning purchase price, book size, and other drivers that he is encountering
Concerning retail M&A in ERCOT, Ochsner stated, "I am seeing some ERCOT retailers that have made the decision to sell before summer -- by May 31. Could be smart to take those chips off the table given the potential for extreme prices this summer. I have very strong buyer interest there. Specifically, eight buyers that are real, credible and have the funds to quickly close deals."
Concerning retail M&A in PJM, Ochsner stated, "I am also working several deals in PJM. The January 2018 polar vortex is still having ripple effects there. I am working with one medium size seller that borrowed almost all of the money required to start operations. The owners did not fully appreciate the risk involved until they had to come up with a $5 million check in just a few days to stay in business. The PJM interest is also more varied but strongest in Ohio. I have some buyers that just want residential electricity customers. I have some buyers that just want gas customers. I have some buyers that want to avoid municipal aggregations. If the seller is not billing the customers directly, then I see a lower multiple on those deals versus ERCOT. PJM deals tend to be focused on a specific state as well. I don't see any players with a strong presence in all PJM states on the market right now."
Ochsner said regarding the size of deals that, "Anywhere from 10,000 RCE to 150,000 RCEs seems to be the sweet spot."
"I was somewhat surprised by the low end, but it makes sense if the buyer has been a buyer before and has a fairly standard acquisition process. It also makes sense if you think about how many days it takes to acquire 10,000 RCEs organically," Ochsner said
On price, Ochsner said, "I am seeing up to $800 per RCE if the provider has a profitable business and a unique platform. Up to $400 per RCE if the provider has not been consistently profitable and/or is just selling a book of business. Most of these deals are not being done on an EBITA basis because the businesses have not been consistently profitable yet. A large supplier based in Dallas has stated publicly that they plan to invest $20 million in 2019 on an organic retail growth initiative versus paying 3-4x EBITA. I am all for organic growth, but with some books of customers on the market for basically book value today I would take a hard look at them."
Ochsner also observed that, "Speed is key on many of these deals as well. Some buyers are missing deals by literally a matter of hours. Most sellers do not want to go through the entire due diligence process with more than three or four buyers, so they limit it to a number like that. It is definitely a sellers’ market."