Australian ETRM vendor, Energy One Ltd, recently announced that it had entered into an agreement to acquire UK-based ETRM vendor, Contigo. Yesterday, Contigo issued an announcement confirming that it was now a part of the Energy One Group, with Contigo’s co-founder and managing director, Adrian Bullock commenting that “the acquisition by Energy One offers exciting possibilities for our clients and stakeholders. We look forward to continuing Contigo’s mission to develop innovative software solutions for the European energy market while offering an increased and global capability for support and service. Energy One has acquired Contigo to nurture and grow the organization, as well as offer new products to the energy market. It is also committed to maintaining the current range of Contigo products, providing a rewarding and exciting workplace and continuing to provide the excellent service to customers and partners that have hallmarked Contigo’s reputation to date. It is a very positive development for Contigo moving forward.”
But exactly who is Energy One and what is its track record in ETRM software?
ComTech has been tracking the company for several years and has published a number of commentaries on the company during that time (See recommended reading below). It is an Australian ETRM and related-software vendor that has thrived in its domestic market and is only one of two public companies in the entire global ETRM software space (the other being Brady PLC), is listed on the ASX. In fact, Energy One went public back in 2007 and in the 2018 financial year, had revenues in excess of US$7.1m (up 62% over the prior year) according to its most recent financial disclosure and profits after tax of around US$770k. It sells a range of software products that include the Wholesale Energy Suite, Energy Business Intelligence, Energy Cloud and others catering for electric power, natural gas, and associated environmental instruments.
Energy One has been pursuing a strategy of both organic expansion and targeted acquisitions and in 2017 acquired Creative Analytics (a local ETRM software vendor) and PypIT (a business platform that facilitates the movement of 40% of natural gas in Australia through pipelines) successfully integrating both over the last year. The company has over 70 customers and 95 installations across Australia and New Zealand. In the last 18-months or so, the company has slowly expanded into Europe with its Energy flow software product (a business process automation and management platform that has been specifically designed to support day-to-day functions for electricity, environmental products, carbon and gas trading operations, reporting and settlements) and had signed a UK-based customer for it as well as being involved in a number of POCs.
Based on our analysis, Energy One is a well-managed and profitable vendor of ETRM and related solutions that dominates its home market and, if it wants to continue to grow, it needs to expand its geographic reach, enter new markets and continue to broaden its product footprint. Plainly, Energy Flow represents a move to satisfy the latter requirement and its acquisition of Contigo gives it access to European energy markets – albeit UK-centric. It has a track record of delivery, implementation and support of ETRM products in a changing and dynamic marketplace in Australia and also of making and integrating acquisitions. That being said, it is still a relatively small vendor in the space with the more limited financial clout that that infers. However, being a public company, it does have access to capital that private vendors do not usually have.
According to ASX statements, Energy One paid 4 million GBP (about US$5.1m) for Contigo funded mainly through a debt facility. The company also stated that it expects Contigo to add around 4 million GBP in revenue and 0.6 million GBP profit in FY20 before any consolidation benefits etc. In essence, the acquisition of Contigo effectively increases the company’s revenues by around 70% in FY20.
Contigo was founded in 2006, and according to its latest announcement, has more than tripled its customer base across Western and Central Europe over the last four years. It’s energy trading and risk management software manages the full trade lifecycle from deal capture through portfolio and risk management to settlement. It includes enTrader® an ETRM solution, preconfigured for the European market and available in the cloud or on-premise, and enVoy, nomination and scheduling software. Its historical strengths lay in the UK market but in recent years, it has expanded into other European markets including Germany and Scandinavia. It is headquartered near Birmingham, England.
In our recent Vendor Perception study, Contigo ranks 10th in overall brand awareness and was noted by some in the survey to be a market leader across a number of categories including energy, power, natural gas, architecture and cloud. It notably ranked highly as a leader in implementation behind ION Aspect and Allegro. It is a regional ETRM software supplier, but it has developed good brand awareness and a solid reputation.
In ComTech’s analysis, this acquisition appears to bode well for the future of both Energy One and Contigo in many ways. It expands Energy One’s footprint into a new geographic region and adds both revenue and profitability, but it also provides a strong platform to sell and support Energy Flow in a broader market as well. Although Contigo and Energy One both supply ETRM software, there is little overlap between the solutions due to the nature of the markets they serve and there is no need for any integration of the products eliminating what has been a challenge in many mergers and acquisitions in the past.
For Contigo, the acquisition creates opportunities for further expansion into Europe with its existing products as well as adding Energy flow to its product portfolio. We have seen Energy Flow and it seems to us to have application in several areas of the energy business and is highly differentiated. We do expect Energy Flow to be a successful product in the space.
For us, any potential downsides around the acquisition would relate to the geographic distance between the two operations and the ability to effectively manage Contigo remotely going forward, while keeping costs under control and fully leveraging the synergies and efficiencies offered by the acquisition. Further, while the combination of the two does appear to be a solid fit, the combined entity still remains on the smaller side by comparison to some of its competitors. In discussing these concerns with Mr. Ankers, CEO of Energy One, he advised us that arrangements are well in hand to address these potential issues and the company is developing an effective operational and marketing strategy to fully leverage the new acquisition. He indicated further announcements will be forthcoming.
In total, the acquisition does seem to be a solid fit for both companies and we feel it should be greeted as positive news for both Contigo customers and the company’s staff.