Energy Services – A catalyst for Private Equity

Digitalisation is accelerating rapidly in the energy sector, leading to a transformation of traditional business models, and the emergence of a tech-based energy services market.

These companies are attracting significant investment from Private Equity firms, but what’s driving this? And is this trend here to stay?

A new wave of energy market disruptors

In recent years, we’ve seen an increase in the number of tech-based start-ups in Energy and Utilities, incentivised by regulators and the government.

This is driving an influx of innovative technologies in the sector, providing access to new types of data, revenue streams and services – all while reducing operating costs.

Unlike traditional asset-focussed power generation, energy services is a market with little barriers to entry. New entrepreneurial players are disrupting the value chain, offering customers a wide range of integrated services that support the transition to clean energy sources, enhance energy efficiency, and offer demand-side flexibility.

Why are Private Equity firms investing in energy services?

Competition is intensifying rapidly as the energy services market continues to grow. We’re seeing an integration of players, driven by the acquisition of energy services companies by vertical industrial, oil and gas, and utility producers.

Through this activity, suppliers are unlocking new revenue streams beyond basic transition, distribution services and billing; and venture capital and private equity firms are actively building portfolio’s in the sector.

Private equity firms are attracted to energy service companies due to:

1. Accelerated revenue and profit growth: The sector is rapidly expanding, driven by regulatory changes to drive decarbonisation, and customers wanting to take greater control over their energy consumption.
2. Essential services: Energy services are essential for homes and businesses. There’s increased demand for new technologies, advisory service, and energy saving products, as we progress towards a future of net zero carbon.
3. Demand: A growth in global population and climate change has increased the need for affordable, efficient control systems - such as heating and air.
4. Consolidation opportunities: The sector remains fragmented, with many SMEs offering specialist services. PE firms see the potential in implementing buy and build strategies, to accelerate routes to market and achieve economies of scale.
5. High margins and recurring revenues: Many services offer strong reoccurring revenues through subscription-based models, running relatively lean operations.

The growth in this market highlights the expanding role of digitalisation across the energy landscape. By lowering the most common barriers to energy transition investment, such as high upfront costs, lack of access to finance, high perceived risk, and lack of trust in new technologies; these digitally enabled businesses are making clean energy solutions more accessible and affordable.

Another busy year for energy services investment?

How fast the energy service model will continue to grow, and to what scale, is dependent on several factors, including technology, economics, politics, regulations, consumer trends, and sustainability issues.

2024 is a pivotal year for the energy market as a whole, as decarbonisation and ESG will undoubtedly be key election issues in several countries. This, alongside continued uncertainty around global supply due to Ukraine and Gaza, and higher cost of debt, is why we’re forecasting increased deal activity in this sector over the coming months.

At BFY, we have a long-standing reputation in the Energy and Utilities sector, working with 75% of Energy Retail suppliers. We’ve been closely involved in transactions in and around the energy market over the past decade, including customer book sales and private equity investments, in areas adjacent to the energy market.

We recently advised on two significant deals:

• LDC investment in UniHomes – Providing energy-related Commercial Due Diligence, evaluating risks surrounding energy procurement from both buyer and supplier perspectives, with a structured improvement methodology. Read more
• Flogas acquisition of Energy Management division of eEnergy plc – Providing Commercial Due Diligence by reviewing historical trading and future projections, EBIT, cashflows and commercial operations to advise and help quantify key risks, carve-out considerations, potential upside to the business plan, and synergies from the proposed acquisition. Read more

If you’re looking to invest in energy services, or you already have them in your portfolio, our due diligence and value creation services can help you derisk your investment, and accelerate operational value creation ahead of divestment.

If you’re the owner of an energy services business and are considering taking on investment to support your growth strategy, or looking to sell, our pre-sale and due diligence service can help you get ready for sale and help maximise your valuation.

For more information on how we can help, contact Angela Tooley.