Following are excerpts from the transcript of PowerSecure’s call to discuss the acquisition of FreshTracks’ portfolio company Solais.  The company’s comments provide an illuminating view into how and why Solais built an LED company that became an attractive acquisition target for NASDAQ: POWR.

 

PowerSecure CEO Sidney Hinton

We believe that this acquisition has potential to deliver extraordinary value to us and we see this acquisition as a game changer for our LED business and we’re very excited about it.  Solais has a proprietary portfolio of LED lamps and pictures for commercial industrial applications. Solais’ innovative designs provide their products with superior light output, strong energy efficiency, strong thermal management, optics and light quality and esthetics that used in high-end retailers. In addition to the outstanding products and lighting design and the expertise of lighting design, Solais has a leading approach to sourcing and manufacturing.

 

The financial benefits and accelerated time to market that we expect to achieve from this sourcing and manufacturing expertise were the primary value drivers in this transaction. In fact, as we were conducting our due diligence on the transaction, we had Solais, we sent them several of our products and have them tear those products down and cost those products for us through their sourcing and manufacturing system. The savings that they were able to achieve were substantial by applying their sourcing and manufacturing techniques.

 

Their manufacturing and sourcing would have added 10 percentage points to our gross margins in our energy efficiency business in 2012, taking them from roughly 30% to roughly 40%. With this acquisition we’ve immediately improved significantly in these areas and we look forward to applying that to create meaningful leverage from an EPS standpoint. We expect the acquisition to transition to be slightly accretive to revenues and EPS in 2013 and substantially accretive in subsequent years. In 2014 we expect the transaction to deliver additional $0.10 in EPS.

 

The acquisition of Solais further strengthens and compliments PowerSecure’s existing LED business through the addition of additional product lines and an expanded customer base, as well as adding the strong set of skills around product design, product commercialization, contract manufacturing and material sourcing. In addition, Solais brings the Company’s strong capabilities in marketing LED lighting through distribution channels.

 

In addition, in general, the acquisition offers us the opportunity to scale our LED business and capitalize on Solais’ exceptional sourcing and manufacturing expertise. In addition to that, we are adding some strong leadership. We are blessed to have a lot of strong leadership in our LED business today with our efficient lights business, our energy light business, and our IES business, but we’ve been blessed to add to that strong team, with James Leahy, the CEO at Solais and a strong management team up under him, very capable group that includes Steve and Chris and George up there. We’re very delighted to him and his senior team, in fact his entire team.

 

Question-and-Answer Session

William Bremer – Maxim Group

Was this is a company that was for auction, or did you, how did you come about finding it?

PowerSecure CEO Sidney Hinton

We were blessed, we did have help from an investment bank that came in. Candidly we were looking at accessing our own business, trying to understand what’s the value of what we have, how do we maximize that value and to be perfectly honest, at the end of those conversations say we’re going to double down this business, we’re going to find the brightest talent we can find in this entire industry and the banker made a passing comment, really as we were finishing leaving, that’s easy who that is, that’s James Leahy at Solais. So he made the introduction and we chased it down.

Rob Brown – Lake Street Capital Markets

PowerSecure CEO Sidney Hinton

One thing I would add Rob, is that these people are all lighting people and you’ve heard me say it before, we’re not, we’re energy efficiency people and that when we went and acquired, when we started efficiency lights, they’re experts in the grocery market, they learned the lighting, they’re controls experts. They learned light, did a great job. It’s wonderful.

And our IES acquisition, they had learned a lot about lighting and they’ve learned a lot about drivers but they weren’t lighting the experts, that wasn’t their core DNA. This whole team, their Chief Technology Officer’s PhD guy in lighting; their head design guy Master’s in lighting; James, an entire career in lighting; George, the guy who heads up their marketing, all lighting. It’ll be a nice addition.

I know they’re looking forward to the commercial knowledge that our guys have, that we excel at, which is applying this technology to niches. But by the same standpoint they’re going to be very accretive to us just from an overall knowledge of lighting, the nuances of lighting industry and so forth. It’s a synergy that we haven’t modeled in, but that we see great potential for.

To read the full transcript, please click here:

Seeking Alpha: PowerSecure CEO Discusses Solais Acquisition