Highlights:
Itron agreed to acquire Silver Spring Networks (SSN) in a transaction valued around $830 million, which is expected to be completed in late 2017 or early 2018.
- Itron is a technology and service company focusing on the energy and resource efficiency sector with full-year 2016 revenues of $2 billion.
- SSN provides connectivity platforms, software, and services in the utility, smart city, and smart industrial space; the company ended 2016 with $311 million in revenues. In 2016 SSN generated more than 20 percent of its revenues through SaaS solutions and managed services. Itron expects $50 million in annualised cost synergies generate through the optimisation of resources and cost/expenses within three years of the complete transaction.
- Itron is a leader in the global smart meter markets and is a top-two global supplier of water, gas, and electricity meters. In 2016, Itron and SSN combined to account for 47.5 percent of North American communications module shipments for electricity meters. The combined company counts on some 90 million smart endpoints.
Our Analysis
IHS Markit expects the acquisition to receive SSN shareholder approval as well as the required regulatory green light. Increased scale, savings, and best practices will strengthen the company’s position in a smart city market which is becoming increasingly competitive. The two companies will work on their standards-based technologies aiming to generate benefits across all the smart city value chain from the device level to the connectivity, software and analytics, and solution levels. Itron will target end-to-end solutions, given the wide reach of the two companies across the value chain, enhanced by a partner ecosystem which will support and complement the company’s offering.
This announcement is the latest in a continuing trend of M&A activity in the smart metering industry. This July, Toshiba sold their majority stake in the global electricity meter market leader Landis + Gyr for the company’s IPO. Only a few days later, Sagemcom announced their acquisition of Meter Italia, a key player in the gas meter market in Italy.
Over the last several years, SSN has become a key communications supplier in both of these metering markets. This was exemplified by their notable win of a Consolidated Edison and Orange & Rockland Utilities project for the installation of over five million smart electric and gas meters in New York and New Jersey.
The acquisition allows Itron to diversify its portfolio into other smart city vertical applications, a move that is essential in a market that is moving from a single vertical to a multi-vertical solution. The big question for Itron now is how to drive integration and growth between utilities and smart city applications. Deploying projects and successful use case delivering benefits for both utilities and cities’ needs is essential to unlock the true potential of the new company.
“To further grow, Itron needs to continue improving on the trend set by SSN of more than 20 percent of its revenues generated through SaaS solutions and managed services,” said Pablo Tomasi, senior research analyst II, smart cities and IoT at IHS Markit. “Expanding this revenue stream is crucial as this model fits well with the smart city market as it tailors around cities’ needs and budgets. This is also in line with the major IoT trend of transition from product-based solutions to service-based solutions. Such a business model eases the pain point of high expenses, and generates recurrent revenues which can be expanded with further services.”
“As expected by IHS Markit, M&A activity is shaping the smart city and smart utility markets with the trend expected to continue in 2018 and beyond,” continued Tomasi. “While other M&A deals such as Verizon’s acquisition of Sensity Systems in September 2016 were carried on in order to acquire a new specific expertise, in the case of Itron’s acquisition of SSN, the two companies were targeting similar segments and consequently the acquisition is mostly intended to strengthen Itron’s leading role in the energy and efficiency sector, including both utilities and smart cities.”
“This is an intelligent strategic move for Itron,” added Thomas Frashier, research analyst, smart utilities infrastructure at IHS Markit. “While reliability remains important, metering hardware has become increasingly commoditized. Future competitive advantage for meter OEMs will be gained through competency in communications networking and value-added services at the meter and in the distribution grid – and beyond, in the case of smart cities.
“Over the past several years there has been an M&A trend in the smart metering industry to acquire analytics companies to develop more holistic software offerings for the grid. The SSN acquisition is unique because it supports a significant play at services beyond the metering industry. Itron has developed a competency in metering and grid analytics and it now seems they intend to leverage this to compete in the larger smart city and IoT environments.”
M&A activity shapes the smart city market across all its verticals. For instance, in July 2017, Eysa acquired P3 Global Management to target the growth of the smart city mobility market.
Many of the themes discussed in this research note are explored in greater depth in IHS Markit’s Smart Cities IoT Intelligence Service.
For information on purchasing this report, contact the sales department at IHS Markit in the Americas at (844) 301-7334 or technology_us@ihsmarkit.com; in EMEA at +44 1344 328 300 or technology_emea@ihsmarkit.com; or APAC at +604 291 3600 or technology_apac@ihsmarkit.com.
By:
Pablo Tomasi, senior research analyst II, smart cities and IoT, IHS Markit
Thomas Frashier, research analyst, smart utilities infrastructure, IHS Markit
