Unsatisfied with an 80% market share in the home generator business, CEO Aaron Jagdfeld has big ideas for home microgrids.
In 2008, things were looking grim for Generac. The 49-year-old firm, which makes natural-gas-powered backup generators, had been acquired a couple of years earlier by CCMP Capital, a New York City private equity shop. To buy out the 81-year-old founder’s 70% stake, CCMP had loaded up the Milwaukee-based firm, which had just $700 million in sales, with $1.4 billion in debt.
The timing was terrible. In 2006 and 2007, only one hurricane (a big driver of generator sales) made landfall on the U.S. mainland. Then the housing crash and Great Recession scored direct hits, cutting Generac’s earnings by a third before debt service and merger-related charges. CCMP was forced to pony up more cash to prevent a technical debt default and tapped Aaron Jagdfeld, a 33-year-old accountant who had risen internally to CFO, to take over as CEO.
The young bean counter had a surprising solution: Get more aggressive. After buying in some debt at 50 cents on the dollar, he took the company public in 2010 and began a string of acquisitions (25 since 2011). First, he bought into peripheral businesses such as cellphone transmission and outdoor light towers. Then he made additional acquisitions to realize a vision of the home as an energy efficient “virtual power plant” capable of not only keeping the lights, heat and refrigerator running when the power grid goes down, but also of selling juice back to utilities as part of a microgrid.
Demand for Generac’s $20,000 generators has surged, helped along by extreme weather events, the deterioration of the nation’s power grids and the pandemic, which Jagdfeld says has turned homes into sanctuaries. Between competitors’ troubles (archrival Briggs & Stratton went bankrupt in 2020) and its own efforts, Generac now has an 80% market share in home backup generators and a six-month order backlog.
Over the 12 months ended March 30, the company did $4.1 billion in sales and $1.8 billion in gross profit—both double pre-pandemic levels. Non-generator sales now account for 20% of revenue. Since the company went public at $13 a share, Generac stock has been on a wild ride. It spiked to an incredible $498 last October and is now back at $250—still a hefty 33 times trailing earnings per share. Debt is a manageable 6% of enterprise value, compared to 80% after the IPO. (Jagdfeld’s personal holdings are currently worth $150 million. CCMP sold out in 2013 at a profit.)
But with new housing starts falling and inflation-battered consumers growing wary of spending five figures for a machine they’ll turn on only a couple times a year, Jagdfeld expects the order backlog to shrink. That’s why he’s got a backup plan.
Little Big Picture: Rain Checks
It’s not your imagination. The weather is getting worse. Last year there were 20 “billion-dollar” climate disasters in the U.S.—mostly superstorms and hurricanes—ten times more than in 1981. These ten-figure calamities cost nearly $153 billion— 48 times as much as 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 people hope they never use’’ and buy only after a natural disaster or grid failure, Jagdfeld wants to start marketing an “energy independence” package pairing gas, solar and batteries, all optimized with machine learning software that manages your heating and cooling with an eye toward making you money. “AI will help you export power,” he says. “Your power is going to be delivered and consumed in ways you can’t imagine today.”
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