Solar panel on the roof
Sungevity, one of the nation's top residential solar panel installers, will be acquired by a private equity firm to help it better compete in the struggling solar panel industry. Photograph by Antonio Ciufo — Getty Images

Solar Company Sungevity Is Going Public in an Interesting Way

Jun 30, 2016

Sungevity, the No. 5 U.S. rooftop solar company by market share, on Wednesday said it would list its shares after a reverse merger by a shell company, allowing it to tap the public markets at a difficult time for solar stocks.

Easterly Acquisition, a company set up as an acquisition vehicle by private equity firm Easterly Capital, will purchase the Oakland-based company in a deal worth about $357 million, the companies said.

Sungevity's existing shareholders and management will retain a 58.8% stake in the company, which will be renamed Sungevity Holdings and will trade on the Nasdaq.

The transaction gives Sungevity an implied market capitalization of $607 million.

The announcement comes a week after the top residential installer, SolarCity (scty), said it was considering an offer to combine with electric vehicle maker Tesla Motors (tsla), which is run by its chairman, Elon Musk.

After years of supercharged growth, residential solar additions have slowed in key markets like California, and state policies are broadly becoming less generous for solar customers.

Investors have fled solar stocks, with the MAC Global Solar Energy index down 52% in the last year.

Though the price of residential rooftop systems has fallen 55% since 2010, the industry is under pressure to cut costs even further so it can compete with centralized power.

"Renewables—in particular solar—will need to demonstrate that they can stand on their own two feet, without the benefit of subsidies," said Roger Wood, a managing director at investment bank Moelis & Co. "This will require taking even more costs out of the system."

Sungevity will stand out, executives said, because its business model is simpler than that of many of its peers. It operates an online platform that links homeowners to installers and financing, rather than doing it all itself.

It is expected to break even by the end of this year, according to Darrell Crate, Easterly Acquisition's chairman.

"Sungevity makes solar simple," Crate said. "Public investors do not want complexity."

Easterly is a so-called blank-check company, also known as special purpose acquisition vehicle. Such companies have become popular as a fast way to list shares.

The reverse merger will enable Sungevity to grow more quickly, the companies said.

Sungevity's market share has hovered between 1 and 3% for a few years, according to industry research firm GTM Research. SolarCity and Vivint Solar, meanwhile, have garnered far larger shares of the market with their vast sales organizations.

But recently SolarCity, which does its own installations and financing and recently moved into manufacturing panels, has been criticized for the complexity of its business.

"We're focused on a smaller number of things and doing them really really well," Sungevity CEO Andrew Birch said in an interview.

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