Not satisfied with an 80% market share in the home generator business, CEO Aaron Jugfield has big ideas for small home networks.
IIn 2008, things were looking bleak for Generac. The 49-year-old company, which makes natural gas-powered standby generators, was acquired two years ago by CCMP Capital, a private equity store in New York City. To buy a 70% stake in the 81-year-old founder, CCMP saddled the Milwaukee-based company, which had just $700 million in sales, with $1.4 billion in debt.
The timing was awful. In 2006 and 2007 only one hurricane (the big driver of generator sales) made landfall in the US mainland. Then the housing crash and the Great Recession scored head-to-head, slashing Generac’s earnings by a third before debt service and merger-related fees. CCMP was forced to pay more money to prevent a technical debt default and hired Aaron Jagdfeld, a 33-year-old accountant who was internally elevated to chief financial officer, to take over as CEO.
The small bean counter had a surprising solution: Be more aggressive. After buying some debt at 50 cents on the dollar, he went public with the company in 2010 and started a series of acquisitions (25 since 2011). First, he bought into peripheral businesses such as mobile phone transmission and outdoor light towers. He then made additional acquisitions to realize a vision of the home as an energy-efficient “virtual power plant” capable of not only keeping lights, heat, and a refrigerator running when the power grid was out, but also selling juice back to utilities as part of a small grid.
Demand for Generac’s $20,000 generators has soared, thanks to extreme weather events, deteriorating the country’s power grids and a pandemic, which Jagdfeld says has turned homes into havens. Between competitors’ problems (Briggs and Stratton went bankrupt in 2020) and its own efforts, Generac now has 80% market share in home standby generators and a six-month order backlog.
Over the 12 months ended March 30, the company generated $4.1 billion in sales and $1.8 billion in gross profit — both double pre-pandemic levels. Ungenerated sales now represent 20% of revenue. Since the company went public at $13 a share, Generac’s stock has been on a wild ride. It jumped to an incredible $498 last October and is now back at $250 – still 33 times late earnings per share. Debt represents a manageable 6% of the enterprise’s value, compared to 80% after the IPO. (Jagdfeld’s personal belongings are currently valued at $150 million. CCMP was sold in 2013 at a profit.)
But as new housing starts to fall and inflation-stricken consumers grow increasingly concerned about spending five figures on a machine that will only run twice a year, Jagdfeld expects the order backlog to shrink. That’s why he has a backup plan.
Small Big Picture: Rain Checks
It is not your imagination. The weather is getting worse. Last year, there were 20 “billion dollar” climate disasters in the United States — mostly major storms and hurricanes — ten times more than there were in 1981. These ten-figure disasters cost nearly $153 billion — 48 times as much. what it was four decades ago, even after adjusting for inflation.
*Includes wildfires, hurricanes, floods, winter storms, freezes and droughts. Source: National Oceanic and Atmospheric Administration
Rather than selling a “product that people hope they will never use” and only buying after a natural disaster or grid failure, Jagdfeld wants to start marketing an “energy independence” package that pairs with gas, solar, and batteries, all enhanced with machine learning software that manages your heating and cooling Focusing on making money for you. “AI will help you export energy,” he says. “Your power will be communicated and consumed in ways you cannot imagine today.”
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