"Hot" Retail Energy M&A Market For New York ESCOs Seeing Prices Of $450/RCE For Deals Being Worked, Advisor Reports
July 22, 2019 Email This Story Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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Retail energy veteran Preston Ochsner, Managing Partner of Ochsner Interests Inc., told EnergyChoiceMatters.com that he is working on several M&A deals in the retail energy space, acting as an investment banker, and has seen a "dramatic" increase in M&A activity around New York-based retail energy providers.
Ochsner made the following observations:
"It is definitely the hottest retail M&A market today. Three of the six clients we are representing today are based in New York (with customers in other states as well), and we are discussions with two other potential clients there. They range in size from 60,000 RCEs to 800,000 RCEs."
"Why New York? - The two biggest drivers for activity there today are 1) strong management teams at the sellers (Frank Sinatra was right) and 2) the area has not received as much retail energy M&A attention as some other areas - specifically Texas due to the large number of providers based here. The market has 59 providers today and some consolidation makes sense."
"None of the deals we are working are distressed transactions."
"Customer Mix - Both power and gas, but power is still the biggest driver of margin and value. It has been interesting to note that churn for power customers has typically been almost a full percentage point higher than for gas customers. All of the deals we see now are mainly commercial customers with some residential mixed in."
"Value and Terms - We have received an offer of $450/RCE for a New York based provider, and we expect the other deals to be done at or above that level. Most deals have an initial payout and then an earn-out based on gross margin over three to six months."
"Regulatory - The New York regulatory environment comes up in conversations between buyers and sellers; but most buyers are already operating there and are comfortable with the situation. I believe regulatory concerns are overblown and have created an excellent buying opportunity. The consensus seems to be that New York is going to remain a better market than Connecticut and some of the other nearby states. The 133 electricity offers on NYS Power To Choose support that belief."
"Variable Customers - We see a very distinct difference in how buyers value New York customers on a variable rate. Some traditional buyers discount that margin and/or shy away from it; but we also have buyers that are using artificial intelligence and machine learning to model how those customers will behave over time. Those buyers attribute significantly more value to the variable portion of the books versus the fixed portion."
"For a benchmark - residential fixed prices on NYS Power to Choose today range from 4.9 cents to 13.9 cents. That range leaves an enormous deal of room for margin management."
"Sales Channels - The providers we are working with use a common variety of channels, but the ones with a direct sales team of 10 or more people get the most attention."
"Trends - Most of the sellers are maintaining the size of their New York book while also focusing heavily on Ohio and Pennsylvania - in that order."
"Opportunities - Some sellers have a strong preference for a buyer with generation in New York. I see an opportunity for a generator like Talen Energy (or others) to quickly get into the New York retail market at a reasonable price. There may also be a potential for someone to do a roll-up."