In a move that underscores the uncertain state of the U.S. smart meter industry, St. Louis-based Esco Technologies (ESE) announced Thursday that it’s seeking a buyer for Aclara, its smart meter subsidiary.

Esco broke the news in its third-quarter earnings call Thursday, saying that it has authorized a sale process for the divestiture of Aclara and retained Stephens Inc. as its financial advisor for the sale.

Esco, which has seen its share price fluctuate widely over the past few years as it struggles to achieve stable growth, said the sale would allow it to raise cash, pay down debt and strengthen the position of its filtration and fluid flow, RF shielding and testing, and utility solutions business units.

Esco announced that it has already received a number of formal offers, including “quality strategic players and leading private equity firms,” and expects the sale to be completed within the next 90 days.

Aclara is a mid-tier vendor in the U.S. smart metering landscape, with the bulk of its business with the small to mid-size rural electric and municipal utilities. Its TWACS powerline carrier technology is also deployed with some major utilities including Pacific Gas & Electric, although in 2008, PG&E decided to switch its electric smart meters over to Silver Spring Networks. This business accounted for 21 percent of Esco’s revenues in 2012, according to company filings.

Over the past few years, Aclara has also built up a market in utility customer engagement software, with a number of top U.S. utilities using its Web portal and back-end system to link residential customers to their energy use (PDF). It’s also working with partner Calico Energy to deliver a combination of customer engagement and demand response via a single platform, aimed at municipal utilities.

Aclara has also been adding new communications technologies to its portfolio, including expansions of its TWACS portfolio to incorporate wireless mesh, and cellular communications via its January acquisition of Metrum Technologies.

But the smart meter market for Aclara and its competitors has been a challenging one over the past few years. In the United States, billions of dollars in federal stimulus grants helped boost smart meter installations through 2009-2011, but the passing of that one-time cash boost has left the market slack since then.

We’ve seen the same lackluster market conditions drive down the financial fortunes of much bigger smart meter contenders, such as Liberty Lake, Wash.-based Itron (ITRI), over the past 12 months or so. But while Itron and major smart meter competitors such as Landis+Gyr and Elster are pivoting to capture growth in European and Asian markets, Aclara has fewer prospects abroad.

Esco’s 10-Q also noted that Aclara reported a pretax loss of $2.8 million in the third quarter and $17.5 million in the first nine months of its 2013 fiscal year ending June 30, as recorded in discontinued operations. That’s a big downward shift from its pretax income of $3.6 million and $6.5 million reported for the same periods in 2012. Aclara's net sales were $44.6 million in the third quarter and $127.5 million for the first nine months of FY 2013, compared to net sales of $51 million and $141.1 million for the same periods in 2012.

Who might Aclara’s prospective buyer be? The smart meter industry has been awash with mergers and acquisitions, making it more difficult for mid-tier competitors like Aclara to keep up. Landis+Gyr, itself an agglomeration of several smart metering brands such as Cellnet+Hunt, was bought by Japan’s Toshiba for $2.3 billion in 2011, and has since pushed its way into a leading role in Japan’s smart meter rollout plans.

While the private equity firm that sold Landis+Gyr to Toshiba is believed to have made money on the deal, most of the other smart meter acquisitions of the past few years appear to have been far less profitable for their investors. Those include Itron’s purchase of cellular smart meter provider SmartSynch for $100 million in 2011, and grid giant ABB’s acquisition of Tropos Networks, a startup with Wi-Fi mesh networking for utilities and cities, for $35 million last year.

We’ve also seen smart metering companies move from publicly traded to privately held status. The biggest deal along those lines was British buyout firm Melrose PLC’s $2.3 billion acquisition of German smart meter company Elster last year. Given the uncertain and challenging market for smart meter vendors, there’s also been plenty of speculation that other big companies in the space could be acquisition targets, such as U.S-based Sensus, as well as Itron and Echelon (ELON).

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Tags: aclara, acqisition, elster, esco, finance, general electric, itron, landis+gyr, markets, sensus, silver spring networks, smart grid, smart meter, smartsynch, trilliant