How valuable is your business
02 May 2019
How valuable is your business?
If you think one day you might sell your solar retailing business, what will it be worth?
In my experience, an investor will certainly look at the value your sales pipeline, and also consider your processes (i.e. how well will the business operate without its directors running the show). The solar industry mostly deals with one-off purchases rather than repeat customers, but investors much prefer to see recurring revenue.
One thing is for sure, if you’ve got a lot of warranty liability, then investors will judge your business to be practically worthless. We’ve seen many times where product recalls and widespread inverter failings have led to solar retailers collapsing, which is a risk an investor simply won’t want to bear.
Your installation practices will contribute to an investor’s assessment of warranty liability. An in-house installation team will be seen to deliver better quality outcomes (i.e. less likelihood of a system failure) than sub-contracting out installations.
The quality of panels and inverters therefore carries huge weighting when an investor is performing due diligence. Fortunately, most of the companies that used shoddy product in the past have departed the industry, one way or another, but there’s passable product and there’s exemplary.
But it’s hard for an investor from outside the industry to judge whether the ‘Tier 1’ panels you’re using will have warranty issues down the line. There’s plenty of Tier 1 solar businesses who’ve gone bankrupt. There are a few measures that differentiate superior quality amongst Tier 1 providers: TUV has PV+, there’s a range of additional IEC certifications for PID ammonia and environmental conditions, DNV-GL, Qualification+, TÜV SÜD Thresher Test, Atlas 25+, PVDI, plus the Positive Quality program. All have their place, but unfortunately none have mass-uptake, and none are strong indicators of the financial sustainability of the manufacturer.
This is where the concept of “Blue Chip” solar products is interesting. Supply Partners first coined the term at the start of this year. Just like a naiive investor in the stock market might like the low-risk offered by shares in a Blue Chip company, a naiive investor in a solar power system can more easily trust a “Blue Chip” solar product. In practical terms, Supply Partners define Blue Chip as:
Time in business is longer than the warranty offered
Diverse range of products
Capability of completing warranty services
$30b in annual turnover
In business for over 30 years
Now, though I don’t completely endorse Supply Partners’ definition (which understandably carries some self-interest), if I were to boil it down to a single line, it would be “this company is guaranteed to honour its warranty claims, even if it pulls out of solar manufacturing”. And I think that’s a pretty sound line of reasoning.
It does include Sumec Phono Solar (who also rank well in DNV-GL’s accelerated life testing), Hyundai Green Energy, LG Electronics, Hanwha Qcells (who are also VDE tested), and a few that aren’t accredited for sale in Australia. Considering solar panels haven’t been in mass production for much more than 10 years, this excludes most of the pure-play panel manufacturers, even though they may be top-quality products with very low rates of warranty claim.
As for inverters, if you were to just look at age, then Bosch (1888), Ingeteam (1940), Fronius (1945), Selectronics (1964), Delta Electronics (1987), MIL-Systems (1987), SMA (1981), Huawei (1987), ABB (1988) would are amongst those that are over 30 years old.
Now, I think the “Blue Chip” concept may speak to a risk-adverse market demographic that truly considers a 25-year product lifetime. And while there are plenty of reasons to choose younger suppliers over more well-established suppliers, if you’d like to sell your business in future I’d select your products very carefully. It could make the difference between a business with some value and a business an external investor wouldn’t touch.
I’m interested in hearing your thoughts and critique of the concept of ‘Blue Chip’ solar products. Email me at warwick@sunwiz.com.au
