Energy efficiency is becoming a core part of Europe’s energy transition. Companies of all sizes, from new startups to established corporations, are exploring smart grids, energy management, and automation; and investors are taking an interest in the category.

The number of European automation deals has been increasing, according to Mergermarket data. It went from five in 2017 to 14 in 2022 and 2023. There have already been 14 deals in the year to date (YTD).

The highest level for disclosed deal volumes so far came in 2022 with EUR 1.5bn. Although this has fallen since then, dealmakers expect the trend to continue to grow in the years ahead as more renewable energy comes online.

One recent deal involved Casino Group [EPA:CO] agreeing to sell its entire 10.15% stake in French energy efficiency and renewable energy company GreenYellow to Ardian and Bpifrance for around EUR 46m in May. The company is likely to remain active in M&A – it recently closed a deal in Portugal and is seeking acquisitions in Vietnam at the moment.

Casino Group sold a majority stake in GreenYellow to Ardian and Bpifinance in July 2022. The company’s enterprise value at the time was EUR 1.4bn, as reported.

Smart grid tech

Traditionally, energy supply was centralised, coming from large power stations, with consumers spread out. This ensured a fairly stable consumption and supply. Today’s world requires a different approach, according to Jon Kåre Solås, a technical specialist from Phoenix Contact.

“Renewable energy sources like windmills and solar panels, whether installed on individual homes, on factories, and in solar parks, impact the direction of energy flow, the voltage level and the frequency of the grid,” Solås said. “To handle this, you can build stronger power grids, including more transformation stations, but this is costly and takes time.”

As an alternative, grid managers can apply distributed sensors and new inspection methods combined with remote monitoring and distributed transformation stations where voltage level can be managed depending on demand supply in the grid, Solås said.

“This allows to combine artificial intelligence with available information to optimize operation, grid balkanizing and capacity, as well as maintenance as an addition to traditional control strategies and inspection and maintenance routines, truly justifying the popular term of ‘smart grid’.”

The use of sensors and artificial intelligence (AI) also ramps up cybersecurity risks, Solås of Phoenix Contact said.

However, this also creates opportunities for dealmakers, as shown by NMi‘s agreement to buy domestic sector peer TrustCB in January. The Dutch investor said that the rationale for the transaction was based on combining precision in measurements with robust cybersecurity standards.

Profits will attract PE

Energy control and management are already themes for executives at industrial players and real estate managers, according to Pawel Czarnecki from KPMG‘s Green Transition Team. “It’s safe to say we can expect many new startup solutions in the smart grid sector, as well as industrial players exploring this area.” Private equity (PE) funds will also want to get a piece of the profits, he added.

One of the more mature companies backed by venture capital (VCs) is Instagrid of Germany. The company, which uses batteries to decarbonise off-grid power, raised USD 95m in a Series C round at the beginning of the year.

Poland-based PySENSE, a provider of internet of things (IoT) solutions with an energy-management joint venture, has received inbound interest. It is in talks to cede a minority stake to a Chinese strategic investor and could make a couple of opportunistic deals within the next couple of years.

Meanwhile, a Dutch cleantech company called iwell is considering mandating an advisor to help with the potential M&A in the area of energy management software. It is also raising funds.

Expect energy automation to become increasingly important for European dealmakers as PEs think hard about the deeper implications of the energy transition.