Sunrun’s CFO shares the 3 key reasons behind the solar firm’s $3.2 billion bid to acquire top rival Vivint Solar (RUN)

• Last Monday, the leading rooftop solar company, Sunrun, announced that it plans to buy rival Vivint Solar in an all-stock deal valued at $3.2 billion. 
• The merger would provide three key benefits to Sunrun, the company’s CFO told Business Insider, including the opportunity to upsell batteries to a chunk of Vivint’s 200,000 or so customers. 
• It will also give Sunrun more brand recognition, which he says is important in a field with more than 5,000 companies. 
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Sunrun, the nation’s largest rooftop solar company, drew global attention when it announced it would buy rival Vivint Solar in an all-stock deal valued at $3.2 billion.

Set to close before year’s end, the deal — negotiated, at least in part, virtually — would represent the largest consolidation in the history of the residential solar industry, Austin Perea, a senior research analyst at the consulting firm Wood Mackenzie (Wood Mac), said in a note following the announcement.  

Both firms sell solar panels that go on your roof, in addition to batteries from LG Chem and Tesla. They also operate in many of the same geographies including California, home to the country’s largest solar market.

But it’s what sets the companies apart that makes the deal prudent, said Tom vonReichbauer, the CFO of Sunrun, in an interview with Business Insider.

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Vivint specializes in direct-to-home sales, for example, while Sunrun has focused its marketing efforts on digital sales, partnerships, and deploying sales teams within big-box stores like Costco and Home Depot.

Headquartered in San Francisco, Sunrun has also been more aggressive in upselling batteries, with more than 60% of customers choosing to add them to their solar systems in some regions in April. Absorbing Vivint’s 200,000 or so customers is an opportunity to sell more batteries, which have been a strong business line, vonReichbauer said. 

Together, the companies have a combined enterprise value of $9 billion, according to an investor presentation, and half a million customers. 

Do you have a tip about Sunrun or Vivint Solar? Reach out to this reporter at bjones@businessinsider.com. 

Complementary sales strategies

“The approaches on go-to-market were very distinct,” said vonReichbauer, and that was a key consideration in the acquisition. vonReichbauer said he wouldn’t comment on how the deal came together ahead of a regulatory filing that’ll provide more information on the negotiations.

Vivint is known for a sales strategy that involves marketing directly to homeowners through door-to-door sales. Combined with Sunrun’s approach, the newly merged firm would be able to reach a larger number of customers, vonReichbauer said. 

“An omnichannel approach makes a lot of sense here,” said vonReichbauer, who started at Sunrun just three months ago.

But Wood Mac’s Perea questions the value of Vivint’s strategy, especially given that the coronavirus pandemic has put door-to-door sales on pause in much of the country. 

“The industry has been moving away from door-to-door sales for years, in part due to the high cost of this sales channel,” he said in the note. “While Vivint has been successful in that space to-date, it’s counterintuitive to envision door-to-door sales as a long-term growth engine, especially as customer education continues to improve and installers — including Vivint — have increasingly moved to digital sales platforms and away from door-to-door sales during the coronavirus pandemic.” 

Read more: Coronavirus forced Sunrun to sell solar panels online. The CEO shared one number that reveals why that approach is here to stay.

But vonReichbauer brushed off that concern, mentioning that there’s still a need for a consultative element that digital sales alone might not be able to provide. 

Batteries: ‘A big opportunity’

Sales strategy aside, Sunrun will instantly inherit a massive new customer base to which it can sell more batteries.

Among residential solar providers, Sunrun is a leader in battery sales, with attachment rates approaching 20% across all geographies, according to an investor presentation in May. Meanwhile, the percent of Vivint’s 200,000 or so customers who have batteries is in the single digits, Wood Mac said. 

“We’re seeing a much higher adoption today, especially during the COVID period,” David Bywater, Vivint’s CEO, said of batteries. “We think there’s a tremendous opportunity not only on our prospective customers but on our entire customer base. This is all upside.” 

Batteries are “positive on the margins,” vonReichbauer said, and so the potential to retrofit systems with batteries among existing Vivint customers presents “a big opportunity.” Grid services — namely, batteries — increases the net present value per customer by about $2,000, or 30%, he said. 

Those profits don’t just come from the direct sale of batteries, but from certain utilities that pay Sunrun to supply energy to the grid from batteries distributed among customers when demand is high.

Sunrun recently announced a partnership with Southern California Edison, for example, to launch a so-called virtual power plant. It operates in a similar way to natural gas peaker-plants, which kick in when energy demand peaks.

A good deal for brand recognition

Residential solar is a fragmented industry with more than 5,000 companies in the US alone, vonReichbauer said. Heading into the deal, Sunrun, the industry’s top company, controlled just 9% of the market, while Vivint was right behind with 7-8%, according to Wood Mac. 

That’s one of the key reasons behind the acquisition, vonReichbauer said. Sunrun wants more brand recognition, like its existing competitor Tesla, to stand out among the ocean of rooftop solar providers. Assuming the deal closes, the company will have 15% or more of the market, Wood Mac said. 

“That can help us attract customers in a new way,” vonReichbauer said. “It’s good for the overall sales funnel.”