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Summary:

Demand management firm EnerNOC, following its successful IPO last year, has been buying up firms to help its growth. The Boston-headquartered company said Monday that it has acquired Baltimore-based energy procurement services provider South River Consulting, which serves as a clearinghouse for the increasingly complex and […]

Demand management firm EnerNOC, following its successful IPO last year, has been buying up firms to help its growth. The Boston-headquartered company said Monday that it has acquired Baltimore-based energy procurement services provider South River Consulting, which serves as a clearinghouse for the increasingly complex and competitive deregulated energy supply market.

EnerNOC spent roughly $4.75 million on the deal — $3 million in cash and 120,000 shares of its common stock valued at $1.75 million. This is the second energy procurement acquisition EnerNOC has made in the last six months; back in September the firm bought MDEnergy for $7.9 million. Energy procurement firms allow their customer bases to shop for energy on the deregulated market; their services include offers from a variety of competing energy providers.

We chatted with EnerNOC’s CEO and founder Tim Healy about why the company is snapping up energy procurement services — and what its plans are for more growth:

E2T: How is this acquisition of South River similar to your acquisition of MDEnergy?

Tim Healy: Very similar, in fact. The success of the MDEnergy acquisition gave us the confidence to do this again. We did it again because MDEnergy specializes in the Northeast market and South River specializes in the Mid-Atlantic. These are small, strategic acquisitions. In both cases we acquired a small bit of technology as well. In this, case South River brings us some of the unsexy back office technology you really need to scale.

Our customers are telling us they want help navigating the complexities of a competitive supply market. There are more and more choices as deregulation continues. An energy procurement service helps in selecting your supplier efficiently and negotiating the best rate with your supplier. We need to make sure we bring as many suppliers to the table as possible.

E2T: Can we expect to see more acquisitions from EnerNOC and will that be a large part of your growth strategy?

TH: We’ve been driven primarily by organic growth. Inorganic growth for us is relatively small but important. The money raised last year is primarily for organic growth but if we see a potential strategic acquisition that fits and compliments what we do and our culture we would certainly pursue that.

E2T: What is driving growth in the demand response industry?

TH: There are more trends than you can shake a stick at, and that suggest to us the industry is poised for enormous growth. You’ve got climate change issues driving more and more utilities to look at demand response, demand management and energy efficiency as substitutes to peak power plants. You’ve got intermittent power sources with these renewable sources coming online that need to be managed to avoid blackouts. More and more commercial and industrial customers are looking to reduce their energy use and their energy costs.

The Federal Energy Regulatory Commission recently embraced demand response as its No. 1 resource. In February they came out with a very aggressive set of comments and said they want to see more and more demand response and more favorable rules for demand response and expanded opportunities for demand response. When you have that kind of impetus from a federal body that is the regulatory body for this industry you know that this is not a fleeting trend.

E2T: How will EnerNOC stay relevant as utilities start and continue to smarten their own grids and offer more intelligent energy management solutions to their customers?

TH: If you look at history as a guide, utilities have traditionally favored a lot of third-party outsourcing of non-core activities. And I’d say demand management isn’t a core activity for utilities. Third parties that can guarantee the resources utilities need — and can do so cost-effectively and maintain the customer relationships — will succeed, and I think we’ll stay incredibly relevant. There will be some utilities that will try to go about it their own way, but we’re talking about a multibillion-dollar opportunity, and several of those billions will be spent through third parties. There is a little bit of a winner-take-all mentality. Once a certain set of leaders are identified, those leaders tend to have an incumbent advantage and the next wave of utilities follow, and you’re seeing the innovative utilities turning to third parties.

E2T: What will EnerNOC gain by participating in Silver Spring Networks’s Technology Alliance Program?

TH: We are a strong proponent of interoperability and open networks. What attracted us to their alliance partner program was that there was a strong emphasis on open networks. Each of us has a roll to play in a smarter, more responsive network and smarter grid. Where EnerNOC fits is we see ourselves as a value-added application provider. Once the communications and IP network infrastructure are built we can leverage our software and algorithms across that network to manage that demand more cost-effectively.

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