This news comes a week after Sunrun announced that it was acquiring REC's residential solar unit, and two weeks after we reported it. Sunrun acquired REC Solar's Residential Division (solar sales, design, and installation), AEE Solar (distribution) and SnapNrack (mounting systems). The value of the presumably all-stock transaction was not disclosed. That makes Sunrun a vertically integrated solar installer and financier with a direct sales force like SolarCity and Vivint.
In June 2013, we reported that Sunrun had won $630 million from three new funds. As Sunrun co-CEO Edward Fenster explained at the time, “These three funds, closed over the last few months, are for the installation of $630 million in solar facilities." Sunrun has raised more than $1.5 billion in project finance since its founding.
Venture capital investors in Sunrun include Sequoia Capital, Accel Partners, and Foundation Capital.
The just-reported $100 million is an equity round, not a rooftop financing fund, and looks like a mezzanine round in anticipation of bulking up in order to go public.
Rob Day of Black Coral Capital observes, "“The consolidation of the solar financing industry is underway, and Sunrun is arming itself with acquisitions and now capital for this next phase. It will be interesting to see if this is an indication of the company filing for an IPO soon. And it’ll be even more interesting to see the moves the rest of the industry makes to try to keep up with Sunrun and SolarCity.”
As Shayle Kann, GTM Research VP, notes, "Sunrun is clearly at an inflection point in its company growth. The recent acquisition of Mainstream Energy (except the commercial segment) is a major business model shift, adding installation capabilities as well as racking manufacturing and product distribution. Strategically, Sunrun is looking at SolarCity's success as a public company as well as an increasingly strong competitor pool on both the financing side (e.g., Clean Power Finance) and the installation side (e.g., Vivint Solar). But, cognizant of these factors, Sunrun is making big moves that place the company on a hopeful path to a bigger exit, possibly via IPO, sometime in the next two years."
A source close to the deal notes that Goldman’s private placement group has been in the market just under a month, and are "positioning this as a mezz round similar to what SolarCity did with Kraftwerk/Valor pre-IPO."
As covered in our previous reporting:
According to a release, "Lynn Jurich will lead the company as Chief Executive Officer, while co-Founder Ed Fenster will continue in his operating role under the new title of Chairman. Tom Holland assumes the role of President and will guide the company's strategy and execution. Mainstream Energy CEO Paul Winnowski joins Sunrun as Chief Operating Officer and Timothy Ball, Chairman of Mainstream Energy Corp., will join Sunrun's board of directors."
REC's commercial unit continues under the REC name with a new CEO, Paul Detering, formerly of Tioga Energy.
It's a deal that has the potential to change the landscape in a dynamic and fast-growing residential solar market. REC already has an existing relationship with Sunrun.
REC Solar had a national residential market share of 2.6 percent for the first three quarters of 2013, according to GTM Research's PV Leaderboard. This move gets Sunrun access to a large, established direct-installer channel, but also places a bit of tension between the company and Sunrun's existing dealer network. Will Sunrun move to an all-direct-sales model? Will Sunrun emulate SolarCity and Vivint, thus jeopardizing its relationship with its current clients, all of which compete with REC?
REC, a sixteen-year installation veteran, has more than 100 outside sales reps in twenty offices across seven states. In a recent article, we noted that REC Solar’s 65 percent year-on-year growth from Q3 2012 to Q3 2013 beats the overall U.S. residential solar industry’s 49 percent growth by a wide margin.
In residential solar, it all comes down to acquiring customers, and this move toward a direct-sales model is one of the ways Sunrun can get to lower customer acquisition costs and larger scale. According to GTM Research solar analyst Nicole Litvak, "Residential solar customer acquisition currently costs installers $0.49 per watt. Over the next four years, this cost will fall to $0.35 per watt, saving the industry a total of $619 million between 2014 and 2017.”