Bernhard Capital sees acquisition potential for energy efficiency software business

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The commercial energy services market will grow from $25.9 billion in 2023 to $67.5 billion in 2032, at an 11.2 percent compound annual growth rate, according to a June report from Guidehouse Insights. Demand for energy services from commercial and industrial companies seeking to lower their energy consumption and carbon footprint has grown over the last five years, it said.

With double-digit growth in the picture, private equity firms are seeking a cut of the action through equity investments with management teams in the energy services and energy-as-a-service (EaaS) software market. Such firms deliver monthly savings to a commercial enterprise through LED lighting, heating and air conditioning upgrades, and building sensors that save energy at daily intervals.

In June, Bernhard Capital Partners, a mid-market investor known for its legacy industrial and energy services investments, took another step outside of its atypical investment profile by acquiring Optimum Energy, an 18-year-old software-enabled energy efficiency and engineering services business, Bernhard Capital managing director Jonathan de Lauréal told PE Hub.

“At first blush it may seem like a new approach for us, but it fits hand in glove with our strategy in the infrastructure services space, serving critical asset owners,” de Lauréal said.

Optimum’s software solution is paired with commercial and industrial heating, ventilation and air conditioning (HVAC) systems, and other process control equipment, to lower a building owner’s energy consumption profile.

Since 2013, the private equity investor has made a handful of investments in energy efficiency solutions, though by contrast Optimum is a pure-play software-as-a-service (SaaS) business with engineering at the core of its solutions, de Lauréal said. The company is growing into an EaaS business, where the principal says bolt-on acquisitions could come into play.

Whether deployed at shopping malls or hospitals, Optimum’s technology is embedded next to industrial equipment such as boilers, chillers, pumps, air handlers and other HVAC equipment. The software is paired with a digital twin technology of artificial intelligence partner Tignis, a Seattle-based technology start-up formed in 2017 to support industrial data processes with AI analytics, he said.

Optimum can provide customers as much as 50 percent HVAC energy cost savings while reducing water usage, de Lauréal said.

Bolt-ons

Optimum and Tignis formed a joint partnership in mid-2023 to deploy more HVAC systems using Tignis’s Paice monitor system to identify operational anomalies that could negatively impact energy usage and carbon emissions in commercial and industrial infrastructure using Optimum’s software suite.

De Lauréal said with the Optimum-Tignis platform at its core, the portfolio company will selectively review bolt-on acquisitions to add “EaaS delivery model capabilities” to the group’s core engineering competency to facilitate a more “technology-enabled energy services model.”

Deal targets include SaaS-focused engineering companies that could enhance the company’s existing AI and machine learning-enabled functions, he said. Optimum and its investor are agnostic to deal sizes, which could range from closely held private companies to carve-outs from public companies, he added.

Bernhard Capital acquired Optimum Energy in June 2023 in a deal that came as a result of bilateral discussions between management and the investor, de Lauréal said. Backed by a VC investor and a large family office firm, including Columbia Pacific Advisors, he said Optimum’s management was looking at scaling up its business through a strategic investment round.

Cascadia Capital Partners advised Optimum Energy on the PE deal. Fischer Broyles was Bernhard Capital’s legal adviser.

Formed in 2013, Bernhard Capital is an operationally focused PE investor with $3.4 billion of assets under management in critical infrastructure, industrial and utility services. Its latest fund, Bernhard Capital Partners III, has raised around $1 billion towards a hard fund close of $1.5 billion, according to a source with knowledge of the firm.

Energy efficiency deals aplenty

Over the last 12 months, six North American energy efficiency and EMS software companies have been acquired by private equity firms or their portfolio companies. In addition to Optimum, commercial EaaS provider Budderfly was acquired by Partners Group in a $500 million deal, while Greenbacker Development Opportunities Fund I, a fund of sustainability investor Greenbacker Capital, invested in Renew Energy Partners, a distributed generation, microgrid and energy efficiency integrator.

That trend follows an increase in European energy efficiency deal activity as well, which PE Hub Europe reporter Nina Lindholm wrapped together in a February 2023 article, highlighting Ara Partners, CVC Capital and Partners Group as active PE sponsors in the sector among six transactions involving European targets.