August 13, 2013 / 4:31 PM / 5 years ago

SolarCity to pay $120 million for direct-marketing company

LOS ANGELES (Reuters) - SolarCity Corp SCTY.O said on Tuesday it will buy direct-marketing solar company Paramount Solar for about $120 million in a deal intended to help cut the cost of acquiring new customers.

Paramount Solar is majority-owned by Guthy Renker LLC, the direct marketing company best-known for its Proactiv skin care line. Guthy Renker’s chief executive, Ben Van de Bunt, is expected to join SolarCity’s board of directors later this year.

The planned acquisition, expected to be completed in September, will give SolarCity a foothold in the direct-to-consumer or over-the-phone sales market.

SolarCity’s stock has been on a tear since its initial public offering at $8 a share in December. It was up 1.3 percent at $38.60 near midday on Tuesday. The company has grown rapidly thanks to a business model that allows homeowners to pay a monthly fee to lease solar panels, eliminating the need for a large up-front investment.

But SolarCity is also under pressure from investors to cut costs, which have escalated due to its dramatic growth. Unlike SolarCity, which sells its systems through a vast network of sales agents, Paramount relies on sales direct to consumers through a call center.

“It’s very simple for a customer to make a decision over the phone, versus a long drawn-out complicated process,” Paramount CEO Hayes Barnard said in interview. Barnard will join SolarCity as chief revenue officer, overseeing the company’s sales and marketing divisions.

Adding Paramount’s remote selling expertise will help SolarCity reduce the overall amount it pays to attract new customers, said Lyndon Rive, SolarCity’s CEO.

“You need to be the best at every vertical,” he said in an interview. “You need to be the best at field sales marketing, you need to be the best at retail and partnerships, and then you need to be the best at remote virtual selling. You need all avenues.”

SolarCity slightly raised its outlook for how many panels it plans to install in 2013, also known as the deployment outlook, to 278 megawatts from 270 MW. It said the deal will have a more significant impact in 2014.

The company is already Paramount’s biggest sales partner, according to Barnard.

With the expansion of its footprint into virtual sales, San Mateo, California-based SolarCity expects to reach a goal of having 1 million customers by July 4, 2018, Rive said. Today it has more than 68,000 customers.

SolarCity will pay $116.3 million in stock for Paramount and the remainder in cash.

SolarCity is backed by entrepreneur and Tesla Motors CEO (TSLA.O) Elon Musk.

Editing by Nick Zieminski and Matthew Lewis

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