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Veolia Starts An Energy Services Acquisition Spree By Buying Specialist Cynergin

On January 16, 2017, Veolia announced that it has acquired energy services supplier and Energy Performance Contract (EPC) specialist Cynergin. This news comes just five days after Veolia announced that it has acquired US-based energy and facilities management provider Enovity, covered in our blog last week. Veolia believes this latest purchase will boost its capabilities in bidding for, delivering and maintaining EPCs and will further extend the capabilities of the existing energy efficiency teams in the UK.

Whilst growth in the UK energy services market has slowed to an annual growth rate of 2% overall, as it is constrained by softly growing energy prices and uncertain policies, the market for EPCs in the public sector continues to offer opportunities for multi-million-pound deals to a select few suppliers. Over the past five years, there has been a relatively steady deal flow through public sector EPC frameworks such as Essentia, Carbon and Energy Fund (CEF) and RE:FIT, with suppliers such as Ameresco, ENGIE, Breathe Energy and Vital Energi participating. Cynergin has won a handful of large projects via the CEF process, including a £4.7 million EPC with Warrington and Halton Hospitals NHS Foundation Trust, and a £2.5 million deal with Yeovil District Hospital.

Previous Verdantix research on the UK EPC market indicates a reliance on public sector frameworks could be a risky strategy going forward. We have heard that such tenders are getting increasingly competitive, which may put pressure on margins and lower average win rates. There is evidence for this in the fact that the number of approved contractors under the CEF has increased from 10 in the first framework, to 18 in the current framework. In addition, we continue to hear that EPC deals often have longer sales cycles than expected. Cynergin has managed to mitigate this risk by winning repeat projects with customers. For instance it is now working on its third major EPC with the Heart of England NHS Foundation Trust since 2007.

Another potential prize all the suppliers have in mind is using EPC structures as part of their private sector work. However this has been difficult to achieve in practice due to the structure of the UK commercial and industrial sectors and their approach to real estate and asset management. The most successful suppliers have moved to radically simpler frameworks inspired by EPCs but avoiding such difficulties as long term contracts and the need for third party verifiers.

For more insight into how the market for real estate, energy and facilities management will evolve in 2017, tune into our upcoming webinar: Predictions, Risks And Opportunities: What Should Real Estate, Energy And Facilities Software Executives Watch Out For In 2017?