Please ensure Javascript is enabled for purposes of website accessibility

Instant Analysis: Southern Company Makes an Acquisition

By Eric Volkman – Feb 29, 2016 at 10:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company will pay $431 million to buy PowerSecure.

What happened?
Power utility Southern Company (SO 0.75%) is soon to be one asset larger. The company announced that its board of directors and that of utility and energy technology specialist PowerSecure (POWR.DL) have agreed to a merger. The deal will see Southern acquire PowerSecure at a price of $18.75 per share in cash. All told, the arrangement is worth roughly $431 million.


Southern aims to expand and modernize its offerings through the deal. In the joint press release announcing the transaction, Southern said that it will be "positioned to accelerate the ongoing expansion of energy product offerings that are intended to provide customers greater control of their energy use."

It will also "add complementary technical depth in customer-located reliability and efficiency technologies," Southern said.

The transaction is subject to regulatory approval. Southern expects the deal to close by the end of Q2.

Does it matter?
For the most part, utilities -- even relatively well diversified ones like Southern -- are slow growers, since rate and customer increases are gradual compared to other industries. As a result, a utility has a better chance of adding substantially to its results if it takes on complementary acquisitions.

That's been Southern's strategy lately, and it doesn't mind spending a buck or two for those assets. Last August, it reached a deal to purchase natural gas utility AGL Resources, a sprawling entity that will cost it around $8 billion.

So $431 million for PowerSecure is small potatoes compared to what Southern's been spending to bulk itself up. Taken as a whole, the stock will certainly be affected by such moves, with PowerSecure the latest confirmation that Southern intends to become a bigger, broader company.

It's an enterprise with high ambitions on the move. We shouldn't be surprised if Southern announces another acquisition -- or several -- in its quest to power up.

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Southern Company. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.