BIG DEAL: Direct Energy to Purchase Clockwork

Will expand service agreements, energy services

A major deal is in the works that will have a significant affect on the HVAC landscape. It touches on service agreements, energy services, franchising, and the overall competitive arena of HVAC in the U.S.

Direct Energy, one of North America’s leading integrated energy and services companies and a subsidiary of Centrica plc, has announced its intention to acquire the assets and business of Clockwork Home Services, Inc. for $183 million. The transaction, which remains subject to certain customary conditions including approval by regulators in the U.S. and Clockwork’s shareholders, is expected to be completed early in the third quarter of 2010.

Direct Energy Services and Clockwork Home Services will combine to become the largest provider of HVAC, plumbing and electrical services to more than three million households annually in North America. The new organization — with overall network revenues, including independent franchise and affinity clients, of almost $4 billion — intends to leverage its size and combined expertise to “redefine the customer experience,” and improve value for North American homeowners.

“The addition of Clockwork Home Services to our Services business helps deliver on Direct Energy’s growth strategy of being North America’s leading integrated energy and services company,” says Chris Weston, President and CEO, Direct Energy. “This acquisition will also allow us to increase the proportion of households that Direct Energy serves where we can offer both services and energy supply from 30% to 55%, with the opportunity to increase our integrated offerings through new Clockwork franchises.”

Combines Management & Service Strengths
Details of the deal were presented in a conference call with HVAC industry editors, by Jim Abrams, CEO, Clockwork Home Services, and Eddy Collier, president of Direct Energy Services.

The combined organization will operate in almost every U.S. state and Canadian province providing repair and maintenance services to customers’ heating and cooling systems as well as energy efficiency related services to both homes and businesses. Clockwork’s strong brands, customer service and industry leading customer management systems complement Direct Energy Services’ strong maintenance and service plan product offering and market leadership in Canada. The new organization will also focus on obtaining state, provincial and federal energy efficiency funding that is widely available to help make North American homes more energy efficient.

Clockwork will grow its base of service agreements through a combination of marketing and competitive pricing.

“The combination of Direct Energy and Clockwork Home Services brings together two of the strongest and best home services businesses in North America to create the category leader with network revenues of almost $4 billion. With our size and coverage across virtually every U.S. state and Canadian province, we’ll transform the home services industry to bring homeowners exceptional customer service and value,” says Collier.

“We’re complimentary in terms of the core capabilities we bring to each other. Direct Energy has 8.5 million maintenance plans in the UK. I’d very much like to see a higher penetration of maintenance plans in the U.S.,” Collier exclaims. “I’ve been incredibly impressed by the management of Clockwork, and the entrepreneurial skill shown by Jim Abrams."

Clockwork will grow its base of service agreements through a combination of marketing and competitive pricing. Sources say One Hour Heating and Air Conditioning, Benjamin Franklin Plumbing and Mister Sparky franchisees and owned operations, and Clockwork’s affinity clients will benefit from Direct Energy’s experience in the home services industry as well as the financial support and energy services expertise of its parent company, Centrica plc.

“Direct Energy’s five million customer relationships in North America and access to capital markets is critical to ensure the continued growth and investment in Clockwork’s highly-successful brands and franchises,” says Abrams. “I’m committed to personally ensuring a cornerstone of the combined organization continues to be helping owned-operations, franchises, and affinity clients rapidly expand their businesses.”

“There’s no question that we want to increase our coverage in North America. The opportunity to grow is still very big,” adds Collier.

Abrams says he and Collier began discussing a purchase in late 2009. “Clockwork has been successful in executing its business plan: acquiring affinity groups, moving contractors from affinity groups to franchises, hiring some of those franchisees and continuing our growth by applying capital to our marketing efforts,” Abrams explains.

For Clockwork’s growth to continue at the current pace, it needed an infusion of capital. It got all that, and more.

“Direct Energy brings us access to customers, capital, and sophisticated management that will help us to continue to grow and be a much larger brand in the U.S. and Canada. Their knowledge of home service agreements is much greater than ours, and they bring a tremendous amount of knowledge, success, and experience from their UK holdings operations,” Abrams says. He adds that Clockwork’s affinity groups will enjoy greater purchasing power, including the purchase of insurance, advertising, and virtually every aspect of their businesses. “Additionally, in some markets in which Direct Energy has substantial utility holdings, they’ll gain access to customers they’ve not had in the past.” Abrams says.

Exit Opportunity for Some Affinity Groups
The deal enables Clockwork to convert some larger affinity groups that opted not to become franchises to now sell those businesses. “We’ll be able to accommodate them now due to our larger capital base,” Abrams says. The existing Clockwork management team structure will remain in place.

“My only regret is that I’m not 25 again,” Abrams says. “I see tremendous upside opportunity for all of our employees and our senior management team to be part of a world class organization.”

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