Five reasons why AI, big data and renewables are the perfect M&A storm
During 2017, an M&A trend has gathered momentum. It involves technologies like big data analytics and artificial intelligence (AI) meeting renewable energy.
Data from the BDO M&A database shows how average deal value for these kinds of mergers and acquisitions has shot up, while deal numbers have been climbing steadily through the last couple of years.
I think we are seeing the early stages of what will become an M&A trend for years to come. Here are five reasons why.
1: Renewables will keep growing
Renewable energy’s market is growing. As there is plenty of evidence of in the 300+ pages of the latest edition of the GSR 2017, backed up by the 90 pages of Bloomberg’s report on global investment trends in renewable energy.
“As of 2015, renewable energy provided an estimated 19.3% of global final energy consumption, and growth in capacity and production continued in 2016,” the GSR report said.
Total global capacity climbed nearly 9% compared to 2015, to almost 2,017 GW at year’s end. Much of that added capacity comes thanks to private companies and investments, and the growth rate will continue to rise. That in turn means that companies need competitive edges to create efficiencies and win market shares. One such edge comes from using new technologies to make both production and distribution of renewable energy more efficient.
2: The grid needs it
One of the biggest challenges associated with the increased renewables market share is the fluctuating energy production that is tied to natural phenomenon like sunshine and wind. This puts pressure on the grid system, and can lead to waste of electricity, as well as money.
As Malte Siefert, physicist at Frauenhofer Institute for Wind Energy and Energy System Technology told Nature:
“To operate the grid more efficiently and keep fossil reserves at a minimum, operators need to have a better idea of how much wind and solar power to expect at any given time.”
The way to generate such insights is through using big data analytics and AI to radically improve prediction models.
3: Many have only just begun
Utilities are generally not the fastest-moving companies in the world. This is not a swipe at them, but simply an observation. If I were involved in building things on the scale of energy grids and power plants, I do not think I would be either.
However, we are starting to see a marked shift where both the production side (power plants, windmills, solar panels, etc.) and distribution side (energy grid and storage) are adapting and starting to integrate new technologies.
One example comes from Europe, where major grid operators have launched what amounts to a digital app store for smart grids. However, it is not going to be up and running for three to five years.
In the meantime, many of the 2595 clean energy start-ups tracked by AngelList are already bringing their products and services to market. It leads to a situation where many large companies may have to resort to M&A to avoid losing market shares to the new kids on the block.
4: The ecosystem is developing
This point leads me to the next: that the start-up ecosystem is developing and offering many new kinds of solutions, often incorporating technologies like AI and machine learning.
To give a couple of examples, PowerScout, is using machine learning and big data to find smarter ways to sell solar panels to customers, while kWh Analytics offers risk management solutions to protect investments in solar. Again, AI plays a central role in their solutions.
Major tech companies are also investing and working to establish themselves in the space. For example, IBM Research has already partnered with 200 companies that use its solar and wind forecasting technology.
In short, if you want to keep up, an app store that is likely 3-5 years away is likely not going to cut it.
5: Companies are making M&A moves for many reasons
One thing is competing with start-ups, but IBM is far from the only big company pursuing these solutions. For example, Google has launched its Project Sunroof. Data from CB Insights shows how the two, along with other big tech companies has been making scores of AI acquisitions.
The same goes for some of the companies specialising in technological solutions for renewable energy, such as NEXTracker, which acquired the start-up BrightBox Technologies to ‘enable smart and connected solutions for the renewable energy market’. NEXTracker was itself acquired by Flextronics International for $330 million.
The acquisitions, scores of start-ups and new solutions hitting the market underline how the marriage of machine learning and renewable tech is still a relatively immature space – albeit it a very promising one. Something that often leads to quick-fire M&A. In this case, another factor is also in play, driving up M&A activity.
As Don Harrison, head of Google’s corporate development team, told Fortune when asked about how the company saw AI and M&A:
“It’s very hard to apply valuation metrics to AI. These acquisitions are driven by key talent -- really smart people.”
The thing is that those people are in short supply as it is, and will be even more so in future. A fact that will boost M&A in the space even further.