Why Sunrun (RUN) Is Buying Vivint Solar Inc (VSLR) In A $3.2 Billion Deal

By Amit Chowdhry ● July 7, 2020
  • This is why Sunrun Inc (NASDAQ: RUN) announced it is going to buy full-service residential solar provider Vivint Solar (NYSE: VSLR)

Leading residential solar, battery storage, and energy services company Sunrun Inc (NASDAQ: RUN) and full-service residential solar provider Vivint Solar (NYSE: VSLR) recently announced that the companies have entered into a definitive agreement under which Sunrun will acquire Vivint Solar in an all-stock transaction pursuant to which each share of Vivint Solar common stock will be exchanged for 0.55 shares of Sunrun common stock — which represents a combined enterprise value of $9.2 billion based on the closing price of Sunrun’s shares on July 6, 2020.

Vivint Solar stockholders are expected to own about 36% and Sunrun stockholders are expected to own approximately 64% of the fully diluted shares of the combined company. And the exchange ratio implies a 10% premium for Vivint Solar shares based on closing prices on July 6, 2020 and a 15% premium to the exchange ratio implied by the three-month volume-weighted average price of Vivint Solar and Sunrun shares.

Sunrun chief executive officer and co-founder Lynn Jurich pointed out that Americans want clean and resilient energy.

“Vivint Solar adds an important and high-quality sales channel that enables our combined company to reach more households and raise awareness about the benefits of home solar and batteries,” said Jurich. “This transaction will increase our scale and grow our energy services network to help replace centralized, polluting power plants and accelerate the transition to a 100% clean energy future. We admire Vivint Solar and its employees, and look forward to working together as we integrate the two companies.”

And Vivint Solar chief executive officer David Bywater pointed out that Vivint Solar and Sunrun have long shared a common goal of bringing clean and affordable resilient energy to homeowners.

“Joining forces with Sunrun will allow us to reach a broader set of customers and accelerate the pace of clean energy adoption and grid modernization. We believe this transaction will create value for our customers, our shareholders, and our partners,” added Bywater.

Sunrun and Vivint Solar both share a mission to create a planet run by the sun. And together, they can empower more families to take control of their energy future by increasing customer choice in how they create and consume power.

There is now an urgent need to decarbonize energy systems. And extreme weather due to climate change is increasing thus putting immense strain on energy systems. Fossil fuel power plants are responsible for over 30% of all carbon pollution across the country.

And Sunrun will be a meaningful contributor to a fully renewable and electrified energy system. The growing fleet of solar homes and batteries will be networked to provide greater benefits to the grid and energy consumers. Generating energy at the point it is used reduces the need for dirty energy being produced far away that is increasingly expensive to transmit.

Together, the companies have a combined customer base of nearly 500,000 and the acquisition creates a leading owner of solar assets globally with over 3 gigawatts of solar assets on the balance sheet. But residential solar has reached only 3% penetration in the United States today and the runway for growth remains massive.

Sunrun has committed to leading the solar industry in diversity and inclusion efforts, career development, and employee benefits. And as part of a broader and more diversified company, the companies will be able to offer employees even more opportunities and solidify their position as the best place to work in the solar industry.

The companies noted that this is a transformational opportunity to generate consumer and shareholder value while realizing annual cost synergies and bring cleaner and affordable energy to more homes. Plus it establishes Sunrun as a leading home solar and energy services company across the US, bringing greater opportunities for consumers to save money on their electric bills and decrease dependence on fossil fuels.

Residential solar has reached only 3% penetration in the US today and yet surveys show nearly 9 out of 10 people in the United States favor expanding the use of solar power.

The acquisition of Vivint Solar adds a complementary direct-to-home sales channel to Sunrun’s platform, increasing our reach and capabilities in a growing market. Their thirteen years of experience has shown that a consultative experience from trusted sales advisors is important to educate customers of the merits of solar energy. And Vivint Solar’s highly trained and consultative field sales experts will be an important part of the combined platform and will serve as critical ambassadors for consumers to learn the benefits of solar energy.

Vivint Solar has adapted to the current environment and accelerated digital lead generation efforts and providing a contact-less selling and installation experience in most instances. And this transition has resulted in improvements for both companies, including setting the foundation for structural cost reductions and improved customer experience.

The companies are expecting to deliver meaningful cost synergies, estimated at $90 million on an annual basis. And they see opportunities across the entire cost base, including consolidating and optimizing our branch footprint, reducing redundant spending on technology systems, scaling proprietary racking technology, and improving sourcing capabilities within our supply chains. Plus there are also opportunities to realize scale benefits from shared corporate functions including accounting, human resources, legal, and policy.

By having a larger footprint of solar and battery assets, the companies are expecting increases in value of what they are bringing to grid services partnerships. And they expect to benefit from efficiencies in large scale project finance capital raising activities.

A lower cost structure from greater scale can also open more markets and allow lower pricing for customers thus accelerating the transition away from polluting fossil fuels. And it will also give our customers access to better and more affordable products and services. Plus combining R&D resources and focusing efforts will allow us to accelerate the offering of advanced solutions like virtual power plants and other energy services programs to more customers in more markets.

Terms Of The Deal

With the definitive transaction agreement, each share of Vivint Solar common stock issued and outstanding immediately prior to the effective time of the merger will be converted automatically into the right to receive 0.55 shares of Sunrun common stock.

And the Board of Directors of Sunrun and Vivint Solar have each unanimously voted in favor of the definitive transaction agreement. The acquisition of Vivint Solar is expected to be completed during the fourth quarter of 2020 subject to approval by Vivint Solar and Sunrun stockholders, regulatory approvals, and other customary closing conditions.

And Sunrun’s Board of Directors will be expanded by adding 2 directors, one of which is expected to be Vivint Solar’s CEO David Bywater.

The support Agreements have been obtained from both companies’ largest stockholders 313 Acquisition LLC (Blackstone affiliate) and Tiger Global to vote their respective shares in favor of the merger and the share issuance, respectively.

And in addition, 313 Acquisition LLC (Blackstone affiliate) has agreed to lock up 50% of shares obtained as a result of the acquisition for 60 days following closing and the remaining 50% for 120 days. Sales are allowed to occur during these periods subject to certain conditions.

Credit Suisse Securities (USA) LLC is serving as the exclusive financial advisor to Sunrun and Cooley LLP and Axinn, Veltrop & Harkrider LLP are serving as legal counsel. And Morgan Stanley & Co. LLC is serving as the lead financial advisor to Vivint Solar, BofA Securities, Inc. is serving as a financial advisor to Vivint Solar, and Simpson Thacher & Bartlett LLP and Wilson Sonsini Goodrich & Rosati are serving as legal counsel.