The combination of Sunrun and Vivint in the US proposes to be “transformational” for both the companies and the US solar market, company execs said yesterday, as Sunrun chief Lynn Jurich described the venture as a “1 + 1 = 3” situation.
Yesterday both companies announced an agreement for Sunrun to acquire Vivint in an all-stock deal valued at US$3.2 billion, creating what will be – by some distance – the largest residential solar installer in the US market.
With 500,000 existing customers and more than 3GW in owned solar assets, the resultant company looks set to become the third-largest solar company by assets owned across all scales in the US and a “clear path to become number one”, Sunrun executive chairman Edward Fenster told a conference call yesterday.
While it remains unclear when merger discussions started in earnest, both Sunrun’s Jurich and Vivint CEO David Bywater were effusive in their praise for the other’s company. Bywater described the opportunity to join forces as a “logical fit”, and one “almost like a storybook” or “like a puzzle piece that just makes sense”.
Jurich said that there has long been a mutual appreciation for Sunrun and Vivint’s work in the market, but it was the onset of the COVID-19 pandemic that actually triggered the deal to accelerate. The pandemic has tested both businesses to the extreme, Jurich said, however that both companies have emerged in relatively good shape provided confidence that not only could a deal work in practice, but that there was no time like the present to conclude it.
Moving the needle forward
In joining forces, Bywater expects to be able to deliver “faster, more efficient and higher quality installations” to American consumers. Sunrun expects to be able to upscale its proprietary racking technology through the use of Vivint’s solar channels, while Vivint is anticipating an uptick in battery storage conversions by leaning on Sunrun’s expertise and track record in the field. It will, Bywater said, “merge the best practices of both parties”.
Fenster expects the resultant company to be able to raise finance more effectively, with its new-found size and scale opening doors to much larger and cheaper sources of capital such as pension funds. The benefits of this kind of capital will be realised by not just shareholders, but consumers too, with the company expected to be capable of shaving cents off the cost per watt of installed solar.
But of more tangible and perhaps more immediate potential is the listed expectation of the company being able to realise some US$90 million in cost savings through various synergies, the magnitude of which CFO Tom vonReichbauer described as exciting. At roughly 4% of the combined company’s entire cost base, realising them will be of significant importance.
These synergies will be experienced “across the entire cost stack” of solar installation, right the way through from cost of capital to point of sale, vonReichbauer said, although they will be predominantly felt in the firm’s OpEx, rather than its CapEx. One particular area highlighted is the potential to rationalise the number of branches the company owns in certain geographies and areas. Both Vivint and Sunrun, active in some of the US’ hottest markets for domestic solar, own and operate branches that are often close to one another. Consolidating those, either by closing down one or moving both to larger premises, will achieve direct savings. vonReichbauer said yesterday as many as one-third of stores operated by the combined entity could close as a result, however there was no commentary on potential reductions in headcount in this regard.
Both Sunrun and Vivint are also confident that there will be no sales cannibalisation or overlap by combining the two companies. Jurich said Vivint’s direct-to-home sales efforts, where Sunrun has “almost no exposure”, would be “incredibly complementary” to her company’s branch and online-based sales activity. Meanwhile the work both companies had undertaken to migrate to a no or low-contact sales and installation structure under COVID had been well received.
But this is not to say that the deal is without pitfalls or potential difficulties, which will need to be navigated through for the resultant entity to deliver on its promises.
Sales adaptation and anti-trust
On the subject of sales, COVID still poses a certain unknown quantity. Both Jurich and Bywater insisted their companies had emerged from the early stages of the pandemic in good positions, having shrugged off the worst of its impact on sales and installs through the adoption of new techniques. Jurich said in the majority of its markets her company was able to do in-person sales and install activities, with digital or online alternatives available for those markets where it cannot. Surging infections in markets such as California may, however, pose more complications in the coming weeks and months with some installers having expected a more productive Q3 after a quieter Q2.
COVID could, however, lead to an uptick in battery storage adoption, Jurich said. With more people working form home, using more energy and even having more time to discuss and consider their options, an investment in a domestic battery makes more sense now than it did pre-pandemic and utilising Vivint’s sales channels and existing install base could be a rich vein to tap.
Realising the aforementioned synergies will also not be without cost or complication. CFO vonReichbauer said the company has anticipated restructuring costs of around US$100 million which, and there was an acknowledgement that not all of the US$90 million in synergies would be realised within 12 months. It will evidently take time for two companies of the size and scale of Vivint and Sunrun to merge.
And that is without any remote possibility that anti-trust authorities in the US take a dim view of the combination of two companies of that size with regards competition. A combined Sunrun and Vivint will capture a huge portion of the US market, with added cost efficiencies leaving it in good stead to beat its competitors on cost in the future. Combined, Vivint and Sunrun currently have secured financing agreements for around 435MW of leased solar installs moving forward, but Jurich acknowledged this was based on pre-synergy cost expectations, so that number could yet increase.
Fenster was confident yesterday however that the combination will be viewed as positive for consumers, pointing as well to the size of the still-untapped US residential solar market; just 3% of US homes have solar installed so far. Both Sunrun and Vivint are cooperating with regulators and hope to conclude that investigation “as promptly as possible”.
In striking a deal, both Sunrun and Vivint have paved the way for the creation of a company that can not only deliver solar and storage to more US homes more effectively, but with the added bonus of doing it more cheaply. There are inevitable hurdles in its path, but both companies appear supremely confident that these are entirely surmountable, and within 18 months a leaner, larger and supremely efficient installation machine will emerge.
Consolidation of the US solar market has begun in earnest, with the potential to deliver tangible benefits to consumers.