June 6, 2014

Ernst & Young Acquires Utility Focused IT Services Business

Ernst & Young, LLP (“EY”) recently announced the acquisition of Five Point Partners, LLC (“Five Point” or the “Company”), an Atlanta-based IT services firm with international offices in Australia and the Philippines. Five Point primarily focuses on utility and energy clients and we estimate the company generates $50 – $60 million in revenue and has a work force of 300 – 400 employees.  The Company’s strength lies in customer centric information systems including CRM and billing applications. This acquisition provides EY with a pool of technical experts in customer information systems, which are applicable to a wide variety of sectors including telecommunications, water utilities as well as electric and gas utilities. In addition, Five Point adds substantial utility industry expertise to EY’s advisory services practice, which has already made five acquisitions year-to-date.

Utilities worldwide are expected to spend over $59 billion on IT in 2014, according to IDC. We believe future IT spending will remain healthy, primarily driven by pressure to contain operating expenses through increased automation as well as the movement towards digitizing the grid. Utilities are finding it more difficult to increase prices with public utility commissions intensely scrutinizing every proposal to raise rates for consumers. In addition, the increasing adoption of smart meters are burying utilities under a massive amount of data. These companies are now collecting data from meters as often as every 15 minutes compared to the traditional 30 day billing cycle.

The industry is also plagued with an aging workforce, which means they must utilize more outsourced services, particularly with IT. However utilities are known to be conservative and often move at a glacial pace. Decision makers at utilities prefer to “play it safe” and tend to procure from large companies or vendors with long-tenured relationships and deep industry knowledge. As such, companies that want to enter or grow their presence in this market should be open to strategic tuck-in acquisitions with extensive industry expertise and deep customer relationships rather than focusing purely on scale. We believe this is what drove EY to acquire Five Point and expect more similar deals to follow.