What happened

NRG Energy (NRG -0.93%) has agreed to acquire Vivint Smart Home (VVNT) in a deal that values the target at $5.2 billion, including debt. The transaction has the two companies' shares moving in opposite directions, with Vivint stock up about 32% on Tuesday but NRG trading down 16%.

So what

Houston-based NRG is a power generation and utility behemoth that has long been searching for ways to lessen its reliance on power and move into more consumer markets. Vivint, maker of smart-home products including home security and lighting controls, fits well into that strategy, and provides NRG with added technological knowhow to round out its own home automation offering.

NRG CEO Mauricio Gutierrez in a statement called the acquisition "a transformational step in achieving our vision" to be at the leading edge of high-tech solutions for homes and businesses.

"Customers want simple, connected, and customized experiences that provide peace of mind," Gutierrez said. "Vivint's smart home technology strengthens our retail platform, improves our customer experience, and increases customer lifetime value."

Terms of the deal call for NRG to pay $12 in cash for each share of Vivint, for total equity consideration of about $2.8 billion, and assume about $2.4 billion in debt.

The deal is a positive outcome for the special purpose acquisition company (SPAC) market. Vivint went public in 2020 via a merger with a SPAC, and the takeout price is a 20% premium to the base $10-per-share offering price.

Now what

The 30% gain is what catches the eye, but it's worth noting that the overall initial impression of the deal from the market is not positive. The decline in NRG's shares price means that combined the two companies have shed more than $900 million in market value today.

In one sense, the deal does help NRG diversify its financial profile and adds the predictability of Vivint's subscription-based model. But this shift away from typical utility services does carry risk, and the deal will at least temporarily increase NRG's debt and crimp its cash flow management. The buyer said it expects to achieve its investment-grade credit metric target of net debt 2.5 to 2.75 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by late 2025 or early 2026.

It is not unusual for a buyer's stock to fall when a deal is announced, and investors should not treat the sell-off as a referendum on the deal or a sign it is time to hit the panic button. But with NRG shares up nearly 20% since mid-July prior to the announcement, it appears some investors have decided to move to the sidelines while the integration plays out.