The energy efficient lighting (EEL) industry is likely to experience broad-based consolidation over the next several years, according to a new report, Energy Efficient Lighting: Innovation Poised to Drive Industry Growth, from Baird, an employee-owned international capital markets, private equity, wealth and asset management firm.
Baird notes that merger & acquisition (M&A) activity has been accelerating in the EEL sector. The number of deals in the sector has experienced double-digit percentage growth from 2009 to 2010, year-to-date, through September 30, 2010. The report's authors cite a number of factors driving M&A activity, including increases in the demand for energy efficiency products, the introduction of new and innovative technologies, better manufacturing processes, government incentives, and growing interest in EEL from emerging markets.
"The global push towards increased energy efficiency on the part of both consumers and governments provides a backdrop for further industry consolidation," said Trish Hansen, Director, who leads Baird's electrical products and lighting investment banking effort. "Company-specific considerations include building economies of scale, gaining access to technology and intellectual property, and eliminating the high barriers to entry that exist in some segments of the market."
The EEL segment currently makes up just two percent of the $12 billion U.S. lighting fixture market, but is growing at a much faster rate than the broad fixture market, according to Baird. Within EEL, the Baird report focuses on two areas the company believes hold the greatest promise: Solid State Lighting (SSL), which delivers illumination through Light Emitting Diodes (LEDs), and High Intensity Discharge (HID) lamps. Citing market research firm Strategies Unlimited, Baird notes that demand for LED lighting alone is expected to grow at a compound annual rate of 35 percent through 2012. This compares to a rate of growth of four percent for the overall U.S. lighting fixtures market.
The report notes a number of additional factors that should support future EEL demand. These include an upturn in the economic cycle, leading to more new home and commercial construction; worldwide government incentives designed to encourage more efficient use of electricity; and, increased demand from rapidly growing countries such as India and China.
Despite the growing number of M&A transactions, the North American and global lighting products sectors remain highly fragmented. This is likely to change over the next several years, however, with consolidation driven by a range of acquirers, including large strategic buyers, private equity sponsors, and venture capital firms, according to Baird.