Home automation finds growth opportunities in energy management
<p>Blackstone acquisition of Vivint for $2B shows enormous potential big players are seeing in field.</p>
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The big news last week in the world of residential energy management systems came when Vivint, a security and home automation services business, formally announced that it will be acquired by private equity firm Blackstone Group for $2 billion.
The acquisition's hefty price tag shows the remarkable growth opportunities many big players are sensing in the emerging field of home automation and energy management. Companies like Comcast, AT&T and ADT have started offering home automation services alongside their traditional services, and investors -- as evidenced by Blackstone's move -- are seeing opportunities as well.
Most home automation services include ways for users to manage energy usage with in-home panels or even remotely with smartphone apps.
As with many other companies moving into the home automation space, Vivint didn't begin like this. Originally a home security company called APX Alarm Security Solutions when it was founded in 1999, the Idaho-based company didn't start moving into the industry until several years ago.
"At that point, we felt like that home automation was not a service or product that most people could afford," said Todd Pedersen, co-founder and CEO of Vivint. "We thought there was a huge gap."
Smart grid meter image by Pi-Lens via Shutterstock
Vivint started providing more integrated home automations, including everything from an energy management and integrated solar energy systems to tornado warning system. Users, for example, can employ an in-home panel or smart phone app to manage any part of this system.
In 2009, Vivint started investing in 2GIG Technologies to expand more into the home automations field and began installing 2GIG’s Go!Control panel. Since then, the company has more than 175,000 customers using its home automation system. It's the largest home automation installer in North America, the company says.
Blackstone will acquire 2GIG along with Vivint's solar program. With the acquisition, Vivint plans to expand into integrating more systems, including a home healthcare system, said Pederson.
Blackstone won out over other private equity investments from Ares Management LLC and GTCR LLC, Reuters reported. Blackstone Group did not respond to requests for comment. It's Blackstone’s internal policy not to comment on a deal before it closes, according to a Vivint spokesman.
Further, other companies with systems already in the home -- such as cable and security companies -- are finding it advantageous to expand into home automation. When companies like ADT already have a security system installed, it doesn’t take much more work to get into energy management.
“By integrating home automation with the security platform, data becomes a valuable asset for customers to make more informed decisions on their use of lights, thermostats and locks for energy savings and improved security,” said Jay Kenny, vice president of marketing at Alarm.com, a home security firm that also powers all of Vivint’s energy management systems.
Other big investments in the space include:
- 2010 - Residential energy management company Opower raised $50 million in venture capital
- 2011 - Schneider Electric, developer of power distribution and automation systems, bought Telvent, which develops software for energy management, for 1.4 billion euros, or $2 billion at the time
- 2011 - Japanese electronics giant Toshiba bought smart meter developer Landis+Gyr AG for $2.3 billion
"[Home automation systems are] becoming more broadly talked about," said Pedersen. "AT&T, Verizon and others that are getting their feet in the industry is only a good thing. The more that it becomes affordable to everyone is good for Vivint."
But, notes Tomas Freyman, valuations director at U.K.-based professional services firm BDO LLP, the home automation sector is still much less developed than energy management for commercial properties.
“I think we're at the beginning of all of this,” said Freyman. “The residential market is much more difficult to unlock than the commercial market. For corporations that are low margin and high energy users, the right energy efficiency projects materially impact bottom lines. [For residential] since energy bills are still a relatively small part of an average family’s outgoings, energy automation products on their own are a tough sell.”
But as energy costs are expected to continue to grow, Freyman expects that residential energy management to become more popular.
Mandated smart meters are an obvious way some places are pushing residential energy management. In the U.K., for example, there is a 2013 mandate for requiring all utilities to adopt smart meters.
"I think [Blackstone] has taken a long-term view and definitely a global one,” said Freyman about the acquisition. “Vivint has global ambitions. It’s the international markets where Blackstone can grow Vivint a lot more. On the energy front, the business has a strong correlation with smart meter rollouts. So far, there have only been a handful of national smart meter programs with many more opportunities to follow. It's a great flagship investment and a testament to the strong growth potential for the wider home automation sector."
Market research firm ABI Research predicts that by 2017, 90 million homes worldwide will have home automation systems installed. That’s plenty of room to grow for home automation service companies like Vivint.
Colin Meehan, an energy analyst for the Environmental Defense Fund, said he sees tremendous opportunity for home automation systems on the residential side. With his work in Texas, there are huge resource constraints but not much support for constructing new power plants. As a result, the discussion is around reducing demand using energy automation systems.
And because residences take up 72 percent of peak demand during the hottest days in Texas, reducing energy constraints will be up to actions taken by residential homeowners, said Meehan.
But you have to be careful with smart meter mandates, warns Meehan.
"With smart grid deployment,” Meehan said, “we see that if you don't engage customers directly and give the right value, you're not going to succeed.”