Updated: Sunrun to buy Vivint Solar for $3.2 billion, Wood Mackenzie puts in context

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Update: Original news story is below, but here is some commentary from Wood Mackenzie on what the deal means for both companies and the solar industry in general:

“Per Wood Mackenzie’s US PV Leaderboard, Sunrun and Vivint have been the #1 and #2 residential solar companies in the US for the past few years. Sunrun holds about 9% of the market share and Vivint is right behind at 7-8%. Without assuming any erosion or gains in market share, the combined entity will represent about 15+% of overall market share,” said Ravi Manghani, Wood Mackenzie Research Director.

“This acquisition, paired with Tesla’s announcement last week to provide some of the cheapest residential solar offerings, indicates that the market is longing for cost efficiencies. With the impending ITC stepdown, the next frontier of residential solar market plays will have to be on the cost side. Sunrun has made a move to gain a cost advantage through this acquisition.”

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Austin Perea, Wood Mackenzie Senior Research Analyst, added: “Sunrun’s acquisition of Vivint Solar will nearly double its market share and represents the largest consolidation in residential solar history. In the near-term, Sunrun will realize millions of dollars in vital cost synergies that accompany scale. These efficiencies will become increasingly important in a cost-competitive industry.

“But the long-term accretive nature of the acquisition is still in question. Sunrun cites Vivint’s direct-to-home sales channel as complementary to Sunrun’s platform. But the industry has been moving away from door-to-door sales for years, in part due to the high cost of this sales channel. While Vivint has been successful in that space to-date, it’s counterintuitive to envision door-to-door sales as a long-term growth engine, especially as customer education continues to improve and installers – including Vivint – have increasingly moved to digital sales platforms and away from door-to-door sales during the coronavirus pandemic.

“On the other hand, the biggest driver for reducing the cost of customer acquisition in the long-run may just be pure brand equity and household recognition. With Sunrun’s market share expanding considerably with Vivint’s acquisition, becoming the juggernaut of residential solar may be the key to long-term growth.”

Original post

Sunrun and Vivint Solar have entered into a definitive agreement under which Sunrun will acquire Vivint Solar in an all-stock transaction, representing a combined Enterprise Value of $9.2 billion based on the closing price of Sunrun’s shares on July 6, 2020. Vivint Solar stockholders are expected to own approximately 36% and Sunrun stockholders are expected to own approximately 64% of the fully diluted shares of the combined company.

“Americans want clean and resilient energy. Vivint Solar adds an important and high-quality sales channel that enables our combined company to reach more households and raise awareness about the benefits of home solar and batteries,” said Lynn Jurich, Sunrun’s Chief Executive Officer and co-founder. “This transaction will increase our scale and grow our energy services network to help replace centralized, polluting power plants and accelerate the transition to a 100% clean energy future. We admire Vivint Solar and its employees, and look forward to working together as we integrate the two companies.”

Transaction Details

Under the terms of the definitive transaction agreement, each share of Vivint Solar common stock issued and outstanding immediately prior to the effective time of the merger will be converted automatically into the right to receive 0.55 shares of Sunrun common stock. The Board of Directors of Sunrun and Vivint Solar have each unanimously voted in favor of the definitive transaction agreement. Sunrun’s Board of Directors will be expanded by adding 2 directors, one of which is expected to be Vivint Solar’s CEO, David Bywater.

The acquisition of Vivint Solar is expected to be completed during the fourth quarter of 2020, subject to approval by Vivint Solar and Sunrun stockholders, regulatory approvals and other customary closing conditions.

The two have combined customer base of nearly 500,000 homes, with over 3 gigawatts of solar assets on the balance sheet. Yet, residential solar has reached only 3% penetration in the United States today and the runway for growth remains massive. Sunrun has committed to leading the solar industry in diversity and inclusion efforts, career development, and employee benefits. As part of a broader, more diversified company, we will be able to offer employees even more opportunities and solidify our position as the best place to work in the solar industry.

Strategic Rationale

This establishes Sunrun as the leading home solar and energy services company across the United States, at a time when the company is also pushing hard to establish virtual power plants (VPP) with utilities across the country.

The acquisition of Vivint Solar adds a complementary direct-to-home sales channel to Sunrun’s platform, increasing its reach and capabilities in a growing market. Vivint Solar’s field sales experts will be an important part of the combined platform, according to Sunrun, and will serve as critical ambassadors for consumers to learn the benefits of solar energy.

Like Sunrun, Vivint Solar has adapted to the current environment, accelerating digital lead generation efforts and providing a contact-less selling and installation experience in most instances. This transition has resulted in improvements for both companies, including setting the foundation for structural cost reductions and improved customer experience.

“We expect additional revenue synergies to generate enhanced value creation for our customers and shareholders from a larger base of solar assets,” the company noted in its press release. “We expect to be able to offer batteries to the combined base of solar customers. A larger footprint of solar and battery assets also increases the value of what we bring to our grid services partnerships and strengthens our ability to deliver considerable value in that business. We expect to benefit from efficiencies in large scale project finance capital raising activities and are excited about the opportunity to build an even stronger and more recognizable consumer brand in residential energy services.”

A lower cost structure from greater scale can open more markets and allow lower pricing for customers, and it will give customers access to better, more affordable products and services.

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