- Sunrun in July agreed to buy rival Vivint Solar for $3.2 billion, the largest merger in the history of the residential solar industry.
- While the deal happened over a few short months and countless video calls, Sunrun had been thinking about partnering with Vivint four nearly four years.
- “Back in the 2016 timeframe, I think we both recognized that the two companies have really complementary customer reach,” Sunrun’s CEO, Lynn Jurich, told Business Insider.
- Jurich says Sunrun has big plans following the merger including building out its fleet of batteries and turning them into virtual power plants that can replace fossil-fuel-based electricity sources.
- Through interviews with Sunrun’s CEO and CFO, in addition to a recent public filing, we pieced together how the deal came together.
- For more stories like this, sign up here for our weekly energy newsletter, Power Line.
The race to buy Vivint Solar was bound, almost entirely, by a few short months in the coronavirus pandemic.
Beginning at the start of the year, the Utah-based solar giant whittled 24 prospective bidders down to five serious buyers. And by summer there was just one winner: Sunrun, the nation’s largest rooftop solar company.
While the bidding war was quick, Sunrun has considered the value of partnering with Vivint, the country’s second-largest rooftop solar provider, for about four years.
“Back in the 2016 timeframe, I think we both recognized that the two companies have really complementary customer reach,” Sunrun’s CEO, Lynn Jurich, told Business Insider.
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A complementary approach to acquiring new customers — one of the industry’s biggest costs — is a key reason behind the proposed acquisition, Jurich said. Vivint is known for its strong door-to-door sales approach, while Sunrun has excelled in digital marketing.
But Jurich’s vision for the company is much bigger than a beefed-up sales force.
She wants to build enormous fleets of batteries among the company’s growing customer base, which can form “virtual” power plants and generate a new stream of revenue from utilities.
Here’s a look at how the historic deal came together, based on interviews with Sunrun executives and a recent public filing. Vivint Solar did not respond to a recent interview request and declined a previous request.
4 years in the making
Vivint Solar has considered a sale for at least half a decade, according to a public filing released last Friday. In the summer of 2015, it struck a cash-and-stock deal with SunEdison — then among the largest solar companies — worth $2.2 billion.
Vivint ultimately pulled out of the deal, citing SunEdison’s “failure to meet its obligations under the merger agreement,” but the company has considered several partnership opportunities in the years since, according to the filing, including with Sunrun.
The first notion that a merger could offer shared value between the two rival firms dates back to 2016, Jurich said.
“The industrial logic made a lot of sense,” Jurich said, mentioning that the two companies have footprints that overlap substantially, leading to lower fixed costs.
Though details are sparse, the public filing reveals that Sunrun and Vivint execs met with each other between late 2016 and mid-2018 to discuss the benefits of a merger, but no specific terms were discussed at that time.
A bidding war
At the beginning of the year, following interest from several buyers, Vivint Solar kicked off a formal bidding process, in lieu of striking a deal with one of its existing suitors.
The company reached out to two dozen prospective bidders, the majority of which were financial firms, the filing said. Of those 24 bidders in early 2020, five of them expressed formal interest in February, per the filing, including Sunrun.
Then, the coronavirus began spreading across the country, hamstringing an industry largely dependent on door-to-door sales. Between March 4 and March 18, Vivint’s stock fell from about $12 a share to less than $4.
Two bidders ended up pulling out, citing the pandemic, leaving Sunrun and two other firms, which submitted a joint indication of interest, locked in a bidding war that played out virtually from April through June.
Sunrun ultimately won the bid. After coming up to Vivint’s asking price of 0.55 shares of Sunrun stock for each share of Vivint stock, Sunrun signed the agreement the night of July 6th, which was publicly announced just before 10 pm.
“We did the entire transaction virtually,” Jurich said. “Counterintuitively, it’s faster to get things done over video,” she said. “It’s been really effective because you don’t have to be flying around the country, more people can be invited into a meeting, you’re more rigorous about writing things down.”
What the deal means for Sunrun
At the heart of the deal is batteries, which Sunrun sells alongside solar panels.
Vivint hasn’t been as proactive at selling batteries to its nearly 200,000 customers, Jurich said, so if the two companies successfully merge, her company will have a massive sales opportunity.
Batteries are “positive on the margins,” Sunrun’s chief financial officer Tom vonReichbauer said. They can also be used to create what are called virtual power plants.
Using software, Sunrun can call on hundreds of batteries among its customer base to each release a small amount of energy to the grid. Collectively they produce enough electricity to potentially replace a traditional power plant, and utilities will pay Sunrun for that power.
“We have the opportunity to really get more batteries out there at a bigger scale, so we can build these virtual power plants,” Jurich said.
Big layoffs are unlikely
Mergers often spark concerns of layoffs, as certain jobs might become redundant.
Sunrun, which overlaps with Vivint in 17 states, “expects to realize scale benefits from shared corporate functions, including accounting, HR, legal and policy,” the filing said.
According to Jurich, there won’t be a lot of redundancies in personnel, which she says is due to the size of the growth opportunity.
“The good thing about this combination is that it’s two growth companies with a very under-penetrated market,” Jurich said, mentioning that just 2% to 3% of all US households are equipped with solar. “The growth potential is ten times that.”
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