Solar energy systems provider, SolarCity (SCTY - Snapshot Report) announced a definitive agreement to acquire Paramount Solar, a subsidiary of Paramount Equity LLC. for $120 million. The deal is expected to be completed in September, subject to customary closing conditions.
Calif.-based Paramount Equity, majority-owned by GuthyRenker LLC, is the largest direct-to-consumer marketing company. Paramount Solar inks deals with customers and then directs them to solar retail service providers like SolarCity to complete the installation work. Homeowners have the option of either buying a solar energy system or opt for a lease of up to 20 years.
SolarCity will pay $116.3 million in stock and $3.7 million in cash for Paramount Solar. Upon the completion of the deal, Paramount Equity Mortgage, LLC, Value360, LLC, and Ironstone Insurance LLC, the remaining divisions of Paramount Equity, will continue to operate as independent companies. Also, Paramount Equity’s CEO, Hayes Barnard, will become the chief revenue officer of SolarCity.
In recent times, the utilization of solar energy is rising primarily due to its clean nature and a growing awareness among the masses regarding its benefits. Also, government incentives and financing options that help to lower the cost of solar panel installation have led to an increase in solar business.
In fact, solar power is currently the only viable choice for residential consumers seeking an environment-friendly power alternative. Solar power limits the expenses and losses associated with transmission and distribution from large-scale electric plants to end users, unlike other renewable resources such as hydroelectricity and wind power.
The Paramount acquisition will complement SolarCity’s own sales effort. Paramount uses direct mail, online ads and radio spots to reach consumers, while SolarCity directly approaches homeowners to sell their solar services.
Therefore, the acquisition will help SolarCity to develop and offer its systems directly to consumers and thereby further increase its already large customer base. Currently, the company has more than 68,000 customers and expects the acquisition to increase its customer base to 1 million customers by Jul 2018.
The acquisition will also help SolarCityto better compete with other energy producers like NRG Energy, Inc. (NRG - Analyst Report), Edison International (EIX - Analyst Report) and SunEdison, Inc. (SUNE - Analyst Report).
The company stated that the acquisition will have a more significant impact in 2014. For 2013, the company raised its installation forecast to 278 megawatts from 270 megawatts to take into account the signed contracts that Paramount will bring.
SolarCity is a leading service solar provider with more than 3,300 employees, 68,000 customers and more than 400 megawatts (MW) deployed. The company plays to its strength by providing renewable power at a lower rate than the grid price to residential and commercial markets in the U.S.
During the recently reported second quarter, the company’s residential megawatts (MWs) deployed increased 144%; cumulative energy contracts signed and outstanding increased 105% and cumulative customers increased 97% from the year-ago quarter.
SolarCity carries a Zacks Rank #3 (Hold).