At a November conference call with investors, PowerSecure Inc. CEO Sidney Hinton was asked about how his company’s technology fit with changing energy-industry trends. He responded, “I feel like somebody that’s 7-foot tall and standing by the volleyball net and I just got the ball,” according to a Seeking Alpha transcript.
Investors savvy enough to trade on Hinton’s confident remarks, when his company’s shares traded for about $13, were rewarded Wednesday when giant Atlanta-based utility Southern Co. bought PowerSecure for $431 million, or $18.75 per share. The offer almost doubled the company’s closing price Wednesday, after shares had declined recently along with the rest of the market.
PowerSecure, which is based in Wake Forest just north of Raleigh, is valuable because it is growing rapidly in some red-hot utility-industry business. Its products are used in distributed-energy systems – which refers to small devices that generate power for use by nearby customers. Renewable-energy sources such as solar and wind power typically are used for distributed generation.
The systems remain specks in the grand scheme of Southern Co. and other big electric utilities, which are dominated by giant coal or nuclear plants that produce power transmitted over long distances.
But the specks are getting bigger in a hurry. PowerSecure’s revenues have tripled since 2010 with much of the recent increase coming from data-center customers, company officials explained in the November call. While they didn’t name names, it’s a safe bet that those customers include some technology giants that are building massive data centers to handle the explosion of digital information. Their data centers use massive amounts of power and their owners – many of which are led by environmentally friendly CEOs – prefer renewable resources over nuclear, coal and gas sources. And PowerSecure is poised for solar’s seemingly inevitable growth.
With 20/20 hindsight, Southern Co.’s purchase also makes sense because of CEO Sidney Hinton’s ties to the company. He worked for the Atlanta company from 1982 to 1997 and later had a market-research post at Raleigh-based Carolina Power & Light Co., which is now owned by Duke Energy. During a stint between jobs, he was an “executive-in-residence” at Carousel Capital, the Charlotte private-equity company co-founded by Erskine Bowles and Nelson Schwab. He held about 600,000 shares of PowerSecure as of last April, worth more than $11 million based on Southern’s bid.
Besides Hinton other Raleigh businessmen serving on PowerSecure’s board are Dale Jenkins, the CEO of Medical Mutual Holdings Inc., a physician-owned insurance company, and Kent Geer, a retired partner at Ernst & Young. His work at the accounting firm included leading its annual Entrepreneur of the Year program, which was won in 2012 by Sidney Hinton and PowerSecure.
A $430 million acquisition wouldn’t be too taxing for Duke Energy, given its $50 billion market cap, so it’s a good bet they either gave PowerSecure a close look or made a bid. Duke won’t comment on M&A, a spokesman says, while noting it has made investments in distributed-energy companies. Duke also has its hands full with its $4.9 billion purchase of Piedmont Natural Gas Co.
Moral to this story: next time you hear a CEO who is selling lots of energy-saving stuff to some of the hottest U.S. tech companies — and saying he feels 7-feet tall — give it a close look.