According to a new report from Lux Research (Boston, Mass., U.S.A.), a research and advisory firm, merger and acquisition (M&A) deals -- just in the first six months of 2011 -- have already totaled twice those made during all of 2010, and many more cash-starved smart grid, energy storage, and electric vehicle (EV) start-ups are considering future deals. After reaching an all-time six-month high of $1.79 billion in the first half of 2010, venture funding for these start-ups had all but dried up in the subsequent twelve months. From July 2010 to June 2011, the three sectors landed only $1.54 billion from venture capitalists (VCs) -- 72% of which was channeled into Series D and later-stage rounds.
M&A transactions totaled $2.42 billion in all three sectors during the first half of 2011 -- more than double the $1.20 billion exchanged during all of 2010, according to the report. The two deals comprising the most activity in each year were ABB's acquisition of Ventyx in 2010 for $1 billion, and Toshiba's acquisition of Landis+Gyr in 2011 for $2.3 billion. All told, the electric vehicle, smart grid, and energy storage sectors saw a total of thirteen transactions in 2010, and another twelve during the first half of this year, says Lux Research.
"As VCs have withdrawn from the smart grid, energy storage and EV sectors, they've left a crowded landscape of stranded, early-stage ventures without any means to finance demonstration pilots or manufacturing scale-up," says Steve Minnihan, an analyst for Lux Research and the report's lead author. "Not surprisingly, well-capitalized competitors and corporate players have swept in, looking to acquire valuable intellectual property, manufacturing capabilities, and client lists at bargain valuations."
According to the report, Seed funding and Series A deals have virtually disappeared for smart grid, energy storage, and EV start-ups as VCs focus their efforts on maturing companies in their portfolio rather than seeking new opportunities.
Acquirers prefer companies that received no outside funding, according to the report. These companies accounted for 44% of all M&A transactions, while companies that completed a Series C round or later account for only 28% of acquisitions. Overall, acquirers in the smart-grid space are favoring low-value acquisitions of small companies with a technology or product that supplements their existing product portfolio and has some proven commercial adoption.
In the automotive and fuel cell industry, companies have drawn the most VC attention. The automotive and fuel cell segments combined represented 66% of all VC spending in 2011, according to the report. Automotive continues to thrive thanks to six vehicle start-ups that have claimed $664 million since the beginning of 2010. Meanwhile, fuel cell companies raised $371 million over 39 transactions since the start of 2010.