Increasing Market Value & Exit Opportunities
in Connected Lighting/IOT
Mike Gagnon
Alumage Advisors
DISCLAIMER: Alumage Advisors, LLC provides no legal opinions or company investment recommendations
Alumage IntroductionConnected Lighting/IOT Strategies --- Financing/M&A/CEO Advisory Services
• Executed $1.2B in deals; increased shareholder value by $2.6B
• Semiconductors...Network Infrastructure...Venture Capital...Lighting
• Profiled 300 SSL companies across >60 product/market/channel attributes
• Evaluated 5,000 LED Products >10,000 Lumens since 2013
* Includes product & financing strategies, related transactions, CEO advisory, reports/briefings, and advisory boards
(Strategic Partnership)
(Companies highlightedduring presentation)
State of The Lighting IndustryDeclining Profits & Market Value - Pure Plays
• DJIA – 28% Market Value Y-Y
• Acuity (AYI) – 29% @ $6.3B M.V.
• Aggregate Publics** – 27% @ $800M M.V.
** Lumenpulse, Dialight, LSI Industries, Revolution, Energy Focus, Orion, Lighting Science (M.V. ranked)
AYI Stock Price, 12 months, 2/2/18
DJIA 2/2/18
• DJIA – 28% Market Value Y-Y
• Eaton (ETN) – 21% @ $38B M.V.
• Hubbell (HUBB) – 6% @ $7.4B
• Cree (CREE) – 21% @ $3.4B• Impressive, considering LED excess
capacity in KOR (OLED transition for TVs) & gov’t capital eqpt support for CN mfrs
ETN, 12 months, 2/2/18
CREE 2/2/18
HUBB 2/2/18
State of The Lighting IndustryDeclining Profits – Other Publics (w/Lighting)
• Sales -
• CAGR -
• Profits -
• Market Value -
State of The Lighting IndustryPrivates – Same as Publics?
AYI 12 Mo. Stock Price, 2/2/18
Global Indoor LED Luminaire Revenues(Strategies Unlimited, 2018)
Sales $5M -------- $25M ----- $100M
• Profits 20%+ EBITDA >$10M EBITDA
@ 25-50% CAGR + path to $25M EBITDA
• Growth niches with proprietary, defensible products & services; mgmt team w/1 visionary, 1-3 great managers
State of The Lighting IndustryExit Metrics: Privates-by-Publics*
* Canaccord Genuity M&A requirements as presented to Alumage clients
• Sales $5M -------- $25M ----- $100M
• Profits 20%+ EBITDA >$10M EBITDA
@ 25-50% CAGR + path to $25M EBITDA
• Growth niches with proprietary, defensible products & services; mgmt team w/1 visionary, 1-3 great managers
• >5% and $3M, 20% growth (”OEM supplier” model*)
State of The Lighting IndustryExit Metrics: Privates-by-Publics
* Minimum “Buy-side M&A” requirement as discussed by OEM Supplier to Alumage Sept, 2017
State of The Lighting IndustryExit Metrics: Privates-by-Publics
State of The Lighting IndustryExit Metrics: Privates-by-Publics
Increasing Market Value Differentiating in Niches
• Top 3 suppliers in any Served Available market (SAM) generally achieve 60-80% of the profits• Identify a SAM nearest to core competencies,
inc. highest entry barriers• Deliver Company & Product Features with
100:1 cost-performance benefit vs nearest competitor
• Say NO to all other extraneous distractions (aka “opportunities”)
• (Applicable to acquirers, acquirees, or “lifestyle” companies)
“Exploring valuation and exit strategies for SSL companies in connected Lighting” – LEDs Magazine Newsletter, 1/23/18
(Porter’s Generic Strategies & 5 Forces)
Increasing Market Value SAM Nearest Core Competencies
• Identify core competencies at the lowest level where one’s highest entry barrier(s) exist• Example 1: Start-up mfr with thermal/materials
background developed industrial high bay luminaire
• Drill Down: Proprietary thermal management (T.M.) technology enabled smaller, lighter luminaires at >$5 savings for heat sinks
• Solution: Far better to have a dominant cost-performance advantage within the smaller T.M. market, than a nominal benefit and much smaller market share as a luminaire mfr
Alumage has profiled ~300 luminaire, driver, control & module mfrs across 60+ strategy attributes
Increasing Market Value SAM Nearest Core Competencies
• Identify core competencies at the lowest level where one’s highest entry barrier(s) exist• Example 2: Pre-LED luminaire mfr was a dominant
supplier to the food processing industry
• Drill Down: Successful at developing & leveraging installation, service, utilities, OSHA, etc. relationships
• Growth Options: Identified healthcare, defense, and education verticals with needs for “certified” lighting products, dealing with gov’t agencies, etc.
Increasing Market Value 100:1 Cost-Performance Benefit
• Aka...Monetizing one’s Value Proposition (MVP)• Combine “value creators” of interest to the
customer with the “must haves”• Product specs, channel, customer service, quality, etc. • Analog Devices (NYSE: ADI) ID’d ~15 value creator
categories...and 5-10 metrics in each category
• 100:1 cost-performance benefit across multiple attributes• Product cost (price) just one factor• Customer costs of doing business with ADI, i.e. ease of
integrating into their product, delivery time, returns process, etc., etc.
• Results: As a MVP team leader, we re-ignited growth trajectory...from $500M-to-$1B over next 4 years
Market NichesIndoor...C&I...Connected
• Indoor - Highest growth (vs outdoor) • paybacks now <1 year• 80% less energy w/dimming, motion, controls
• C&I - Multiple “High Lumen Output” (HLO) verticals...high bay +• 10-30,000 lumens - factories, warehouses, big box
retail, defense, food processing, hazardous, architectural, healthcare, horticulture, etc.
• 30,000+ lumens – airport hangars, convention centers, sports, etc.
• (outdoor – flood, high mast highways/ports, sports )
• Connected Lighting – still early; move slowly, choose carefully
Global Indoor LED Luminaire Revenues(Strategies Unlimited, 2018)
C&I Vertical Market & Commoditization Trends
• 1st year since 2013 where Smart Lighting trends slowed AND reversed• Increased competition in commodity products & some
verticals not requiring all Smart Lighting features
• Shorter Product life cycles (30% annual turnover) enabled by • “pin compatible” LEDs with leap-frog performance,
utilizing programmable drivers from original luminaire design
• SAM selections, differentiators and cost/performance benefits must transcend above trends
Alumage has evaluated >5,000 High Lumen Output products across 40 specifications since 2013
• The entire SSL ecosystem facing the same competitive challenges, i.e. “Top 3 Suppliers = 60-80% of the profits”
• Same guidance for 1) identifying one’s SAM in line with core competencies, 2) delivering features with 100:1 benefits, and 3) saying “No” apply
C&I Vertical Market & Commoditization Trends
After 2015, similar analyses available only via “private client” services
Connected Lighting – The Big Picture
Aggregate of 40+ submittals, 8/17, for SIL Connected Lighting Track
Connected Lighting/IOT – Where to Begin?
Aggregate of 40+ submittals, 8/17, for SIL Connected Lighting Track
A data collection platform that also lights spaces
Is this different from traditional lighting control?
YES
OpportunityEnabling intelligent lighting devices with the right type and amount of data can result in reduced energy consumptions and improved lighting performance
ThreatThe collected data may enable other revenue streams that compete with lighting and energy performance
What is a Connected Lighting System
U.S. DoE, 4/27/16
Connected Lighting Market Development
• Still early stage, emerging market • Multiple connectivity, security, etc. choices
• Trials increasing in all segments
• LaaS programs increasing to mitigate connected lighting product acquisition costs• ESCOs, mfrs, utilities & 3rd parties
• Requires mfrs with deep pockets, staying power • Publics
• Well-funded privates (lighting and IOT-centric)
Connected Indoor LED Luminaire Revenues(Strategies Unlimited, 2018)
Connected Lighting Systems & Controls MfrsMost Common “Mentions”
Systems Controls
C&I Home C&I & Home
Acuity Belkin Cimcon Lutron
Cooper Cree Control14 Murata
Digital Lumens FEIT DimOnOff OSRAM
Enlighted GE Echelon Petra
GE Insteon GE Philips
Legrand Leviton Honeywell Schneider
Lutron LIFX Huagong Telematics
OSRAM Lutron Leafnut TVILight
Philips OSRAM Legrand Zengge
Zumtobel Wink
• And don’t forget the semiconductor guys...AMS (sensors)...Infineon, Maxim,ON Semi, Power Integration, TI, etc. (driver ICs)
Indoor Connected Lighting (IOT Companies)
“While the LED revolution may be over, the story of intelligent lighting is just beginning.” Techcrunch, 12/20/2015
• Acuity – Atrius IOT...the Internet of Us
• Cree/Cisco – Smartcast PoE Intelligence Platform
• Digital Lumens – IOT-Based Business Intelligence ($65M invested, founded 2008)
• Lunera – Cloud Managed, Connected, IOT Platform ($25M+, 2007)
• Noribachi – Pulse IOT & Digital Services (wealthy private, 2007)
• Enlighted – the IOT Solutions Company ($80M+, 2009)
• Gooee – Enterprise IOT Ecosystem ($8M, 2014)
• Stack Lighting – Smart Lighting Lamps ($15M, 2013, defunct)
PlatformPartnersPrograms
Indiana Jones Holy Grail Scene
Example - Enlighted Luminaire Partners
>500 VC-Funded IOT Companies
• Evaluate partner candidates w/similar market focus
• Additional IOT companies in AI, security, etc.
CB Insights Industry Reports
Exit Options - Select Transactions
SIL, February 2017, Canaccord Genuity
• Leviton/Birchwood Lighting, 5/17• Linear, spec-grade luminaires
• 4th acquisition in new, lighting SBU
• OSRAM/Digital Lumens, 8/17• “Leading U.S. Software Platform Provider”
• Priced @ “mid-double digits” ($65M invested)
• Harbour Group/Green Creative, 10/17• P.E. fund making 2nd lighting acquisition in 2017
• Also acq ILP from P.E. fund, Pfingston, 4/17
Exit Options - Types of Buyers
• Lighting, Controls & Energy Management Publics• Primarily EBITDA driven
• Exceptions for high growth niche opportunities
• Private Equity Funds (Harbour Group, Pfingston, etc.)• Roll-ups, with lead SSL manufacturer
• IPO or sell Group to large publics
• SSL Ecosystem Consolidators (Luminaires Group, etc.)
• 1+1=3 mergers (Light Efficient Design/RemPhos)• “I appreciate your mentorship and guidance through the years,
and consider you a true friend.” – D. Gershaw, CEO Remphos, 2/15/18
“Sweet Spot” for Luminaire,Driver & Controls Mfrs
Increasing Market Value Differentiating in Niches - Summary
• Top 3 suppliers in any Served Available market (SAM) generally achieve 60-80% of the profits• Identify a SAM nearest to core competencies, inc.
highest entry barriers
• Deliver Company & Product Features with 100:1 cost-performance benefit vs nearest competitor
• Choose Connected Lighting partnerships wisely
• Leverage LaaS
AND
• Can’t be all things to all customers...start thinking about “1+1 = 3”, Best-in-Class combos
Let’s Talk
Alumage Advisors Strategies Unlimited
Typical Custom Engagements
Thank You
Mike Gagnon
Alumage Advisors, LLC
978-828-5456
Skype: michael.gagnon01
www.alumageadvisors.comConnected Lighting/IOT Strategies, Financing/M&A/CEO Advisory