Generac chief executive officer Aaron Jagdfeld is quick to acknowledge he is a bit of a “home automation geek.”
“Some people work on cars, some people do woodworking, I do home automation stuff, that’s kind of my hobby,” he said.
It makes sense, then, that he’s tried out a number of the smart thermostats on the market. He came to the conclusion that many of them are primarily offering the ability to remotely control your thermostat and the user still needs to do something to make things happen.
ecobee, which Generac now plans to buy in an up to $770 million deal, provided something different. Jagdfeld highlighted how the ecobee products use sensors to know when you’re home or even which rooms are occupied and then adjust heating and cooling performance accordingly. It has “real intelligence” and is “a true smart ecosystem,” he said.
“It really changed my mind about what a smart thermostat is,” Jagdfeld said.
When the team at Generac started talking with ecobee leadership this spring, the conversations focused on the potential for some kind of commercial agreement. Generac has been steadily expanding beyond generators and into energy technology in recent years and knew it wanted a partner in the thermostat space. Jagdfeld said it wasn’t clear if the company needed to actually own a thermostat brand.
At the same time, ecobee’s leadership had started to look for what its next step would look like and was in talks to be acquired and go public via a special purpose acquisition corporation or SPAC.
The talks between Generac and ecobee continued into the summer and evolved into an earnest discussion about a potential M&A deal. Jagdfeld said Generac asked ecobee to pause its SPAC process to give it a chance to do its diligence and see if there would be a path to a strategic acquisition.
That’s where Generac’s evolution into an energy technology comes into the picture. The company recently laid out a new strategic plan that includes the combination of its mission and vision statements into a single purpose statement.
“Lead the evolution to a more resilient, efficient, and sustainable energy solutions,” the purpose statement says.
Jagdfeld said ecobee founder Stuart Lombard started the company with a focus on energy conservation and Generac’s direction resonated and fit with where ecobee is headed.
“That was really exciting to them and really important to them,” Jagdfeld said.
Becoming part of Generac also allows ecobee to stay focused on its mission.
“To have that kind of alignment, they weren’t going to get that if they do a SPAC or they do an IPO,” Jagdfeld said. “You get something else, you get access to capital, but that’s a different deal. For a company that’s pretty small like they are, that’s a hard path.”
For Generac, ecobee represents a chance to bring together all the pieces of the home energy world. In addition to a thermostat, the company has also acquired water heater controls, load management tools and battery storage products, on top of its own home standby generator.
“They’re pretty disparate,” Jagdfeld said of the company’s devices. “They don’t do a lot together to kind of synchronize their actions and they don’t contain a ton of what I’ll call ‘true intelligence,’ what you see in the ecobee platform.”
Generac also acquired a company that provides software to grid operators and utilities to help them balance growing electricity demand, decreased supply reliability from the shift to renewable sources and greater volatility from extreme weather events.
The idea is that the ecobee platform and Generac’s grid services offerings will help both consumers and utilities navigate the energy transition away from fossil fuels.
One obvious question is why Generac would need to buy a platform to make that happen. Why not build its own capabilities internally?
“For us, our biggest proof point in answering that question is what we’ve already been working on internally,” Jagdfeld said.
He acknowledged his preference would be to look internally before spending money.
“This is an expensive deal relative to deals we’ve done, for a company that’s losing money. They’re burning cash because they’re still in investment mode,” Jagdfeld said.
The reality is Generac has been working on its own connectivity products for its generators for the past seven years. The result is an app Jagdfeld said is “serviceable” but “nothing memorable.”
“We’ve spent a lot of time and money to get to the level where we’re at and I would tell you the level that we’re at is nowhere near the level that the ecobee team has taken their platform to,” Jagdfeld said.
Of course, ecobee has been at it for 14 years, twice as long as the Generac team. Wouldn’t that suggest the team just needs more time to get to the same place?
“The answer is maybe,” Jagdfeld said. “But I think realistically what we need here is speed.”
He pointed out that no one has gone after the full home energy market. Generac’s goal is to be the company people think of when it comes to their home energy use and generation.
“I think to be first to plant a flag on that is going to be worth something,” he said.
While the ecobee deal has big implications for Generac’s business, there likely won’t be as much impact on local operations in Wisconsin. The company has developed a network of satellite offices in Vancouver, Oregon, Los Angeles, Denver, Boston and Portland, Maine, primarily as it has made acquisitions in the energy technology space.
ecobee currently has around 530 employees with plans to grow to 600 by next summer as it integrates with Generac’s operations. That hiring will likely be in Toronto.
Jagdfeld said the technical talent the company needs is a easier to find in Canada, partially because of immigration policies in the U.S. He lamented the limited number of work visas available in the U.S. and the lengthy process to get one.
“In Canada, they've kind of made peace with it and they actually embrace immigration and because of that the pool of available talent, in particular around software developers and some of the hardware developers that we would need are a little bit more readily available,” Jagdfeld said.
