Itron drops $830m on Silver Spring, in smart grid consolidation

Utility metering vendor Itron has announced it is dropping $830m on the acquisition of smart grid mesh network specialist Silver Spring Networks. The two companies had long been rivals in the advanced meter infrastructure (AMI) market, of which Silver Spring has made more unit installations. Itron will hope the acquisition allows it to secure key markets, in particular North America. The deal marks one of the most significant consolidations in the IoT sector this year.

The offered price represents a premium of 25% over Silver Spring current value, although it is in line with other technology acquisitions. Both vendors had been developing proprietary iterations of a wireless mesh network technology to connect their devices. Both are also members of the Wi-SUN Alliance, which should help with integrating the two product lines.

Itron is funding the deal, fully underwritten by Wells Fargo, with cash and $750m in incremental debt. The deal has already been unanimously approved by both company boards, but still requires Silver Spring stockholder approval and regulatory clearance – which are expected to be in place by then end of this year.

In 2016, Silver Spring generated revenues of $311m, with a gross margin of 44%, and ended the year with $1.2bn order backlog. Itron was keen to point out that Silver Spring had $118m in cash that Itron would also be acquiring – an indication of the strength of the company.

Itron also reported that the combined operation will be able drive an annual $50m saving in production and sales channesl within 3 years, through leveraging the combined assets and cutting back on overlapping parts of the operation. Financial analysts expect the acquisition to improve the long-term growth potential of Itron, adding more capabilities in terms of supporting infrastructure with secure network products.

Silver Spring doesn’t make its own meters, instead focusing on developing its Starfish mesh network tech, partnering with other vendors to provide the metering equipment itself. Because of this, we expect the newly merged supply chain and contacts to have considerable overlaps – which will be ironed out.

Silver Spring generated more than 20% of its revenues through its SaaS products. SaaS, unlike equipment vending, is annually recurring revenue, and means that a customer is tied into a longer-term relationship with the vendor. Over the past years, Silver Spring has been focused on growing its SaaS bookings, in an effort to add repeating revenue on top of equipment sales. Itron said this SaaS strategy was the most attractive part of Silver Spring – noting that the company was out in front.

It’s unclear whether or not Silver Spring will continue to work with other metering vendors. It has broad relationships with Elster, Vision and Landis+Gyr, as well as a number of Asian and South American meter makers. Global manufacturers often find that Europe presents another challenge, due to its notably different ISM RF regulations – which have proved problematic for mesh networking, due to the constraints.

Smart metering is still one of the major early drivers of total IoT endpoint connections. Silver Spring has also installed a significant number of connected streetlights, estimated at around 4m units – giving the new joint offering a platform to deepen its involvement in smart cities.

To date, Silver Spring has delivered more than 26.7m network-enabled devices across five continents, but the hope will be that Silver Spring’s networking technology will be appropriate for many other use cases in the IoT. Riot is aware that Silver Spring was looking to extend its offering in the smart cities space, and was also looking at the possibility of deploying public mesh networks.

It is estimated that the combined company would have more than 90m connected endpoints deployed, with some of the world’s biggest utilities. It is unclear as to how many of those devices use the Wi-SUN standard that Silver Spring has based much of its tech on, but we anticipate the existing endpoint deployments becoming an opportunity to sell additional SaaS and software products.

The acquisition news came just days after Silver Springs announced that Acuity Brands would become a new channel partner and that the two companies would be launching a new street lighting system.