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Buying in expertise for rapid growth

WORLDWIDE: Merger and acquisition activity in the wind industry continues to rise, with the major turbine makers showing a growing appetite for swallowing up the services and technology independents.

“Adding Availon accelerates our business.”  Christian Venderby, vice-president for servicing, Vestas
“Adding Availon accelerates our business.” Christian Venderby, vice-president for servicing, Vestas

Mergers have been a continual feature of the wind business. The big deals of recent years, involving some of the industry's best-known names - Vestas and Mitsubishi Heavy Industries, GE and Alstom, Nordex and Acciona, Gamesa and Areva, and now Siemens and Gamesa — are the headline grabbers. But there are plenty of other key acquisitions that have passed below the radar.

These are often characterised by the takeover of firms that either have a strong presence in a specific market sector, or own valuable intellectual property (IP). Vestas, for example, has bought two services specialists in the past few months: US services provider UpWind for $60 million, followed by Germany-based Availon for an undisclosed sum. GE's acquisition of blade designer Blade Dynamics provides another example.

Is this simply a case of bigger companies feeding on small ones, the steady process of consolidation in a maturing industry, or are there more complex reasons for this activity?

Downstream demand

In financial terms at least, the acquisitions trend appears to be on an upward curve. According to cleantech research group Mercom Capital, total acquisitions in the wind sector amounted to $15.4 billion in 2015, a large proportion of which relates to corporate and project mergers and acquisitions (M&As). In total, there were 48 wind industry deals during 2015, compared to 28 the previous year.

"Most of the acquisitions in 2015 were of wind downstream companies, primarily project developers and a few O&M companies," says Mercom CEO Raj Prabhu. "There were also acquisitions of turbine companies, service providers, gearbox, tower and blade producers. But the majority of the activity was centred around developers. We expect similar trends in 2016, with most of the M&A activity to be centred around downstream players," Prabhu adds.

There appears to be a cyclical trend for the type of companies purchased. Onshore, integration of services is in fashion. A good example is provided by Gamesa's 50% acquisition of servicing specialist NEM Solutions last December. Gamesa corporate development managing director David Mesonero said the company that focuses on technology and data mining could give Gamesa a boost in terms of data management and predictive maintenance.

As well as giving a good route into a market, valuable IP can pull in buyers. "IP is often a driver in M&A, but typically, no one acquires a company for IP alone, particularly if there are not products and services that serve as vehicles for commercialisation of that IP," says Philip Totaro, founder of consultancy Totaro Associates. "After all, it's really about driving revenue growth."

Some OEMs could make a purchase if they felt the IP is under-utilised, but the more important driver is gaining access to the people, their knowledge and the trade secrets they hold in their heads, Totaro suggests. He believes that there is likely to be more M&A activity among turbine suppliers and the remainder of the supply chain in the near future.

Rapid entry

Competition for dominance in individual markets can also be a consideration. Global demand for wind may be rising, but it is still not robust enough in many regions of the world to support more than three or four OEMs. GE, Siemens and Vestas between them controlled about 90% of the US market in 2015. Acquisition can be a quick way to move into these markets, or simply another mark of consolidation.

"Companies with unique technologies and services that can improve operations and efficiency or cut costs will be ideal candidates for larger companies to acquire," says Mercom's Prahba. "The reasons could be strategic — to gain market share or to vertically integrate, or both."

GE says it is still too early to discuss its plans for Blade Dynamics. "At this point, we are still in the early stages of the integration process, and we will be working with the former Blade Dynamics team to develop our future technology plans in the coming months."

Extended reach

Over at Vestas, vice-president for servicing Christian Venderby says the purchase of Availon was primarily about acquiring its expertise on non-Vestas platforms. The company has a strong presence in Germany that fits in with Vestas' aim of pushing its servicing offer into other manufacturers' turbines.

"We have been growing organically, and are on track for 30% growth," says Venderby. "Vestas has also been successful in non-Vestas service deals, with 1GW of agreements. Adding Availon accelerates our business."

Vestas looks for a combination of factors in its acquisitions. "The service business is a key focus area. We're in a fairly strong financial position as a company, and when the opportunities arise, we make a decision. There has not been a change in approach," says Venderby. Whether Vestas will be buying again, he adds: "You won't get me to rule it out. But I think we're in a good position right now."

Traditionally, Vestas has avoided acquiring new companies — its track record is certainly less than, say, GE or Siemens. But Venderby has a straightforward reason for why Vestas has bought Upwind and Availon rather than build its own services organically: it is simply a quicker route to growth, he says.

Making it work

The question arises of what happens to a once-independent company when it gets subsumed into another. Referring to Availon, Venderby says nothing will change immediately, but there will be an assimilation of the company's expertise into Vestas' servicing operation.

GE has plenty of experience of bringing in new acquisitions. Its most recent purchase, Blade Dynamics, will now become part of GE Renewables, the new division created from GE's takeover of Alstom's wind business. Other deals include a $3.2 billion purchase of French drivetrain specialist Converteam.

But the experience has not always been successful, a noted failure being the purchase of Norwegian turbine manufacturer ScanWind in 2009. That company's direct-drive turbine was to provide the basis for GE's first purpose-designed offshore turbine. However, after one prototype was installed in Sweden, GE cancelled its development. According to reports, the 4.1MW machine was deemed uncompetitive for a market that was already looking at 7-8MW turbines.

Where are they now?

In public, GE has refused to admit the purchase was mistake, but the fact remains that it has produced no other offshore turbine, and the ScanWind technology does not appear to have been adopted by other GE products. "Over the years we used this (ScanWind's) component technology in our research and development process," a GE spokesman says. "Specifically, the technology was a significant part of our 4.1-113 offshore turbine, which we successfully validated in Goteborg, Sweden, with 99% availability.

"At the time, offshore manufacturing on a larger scale did not make economic sense given the high costs associated with the technology."

A number of other acquisitions have hit the rocks. One of the best known is UTC's buy-out of Clipper Windpower in 2013. By this stage Clipper was already struggling financially, and with UTC holding a significant share of the company from a previous investment, it completed the deal.

By 2012 little progress had been made and UTC sold it on to private equity company Platinum Equity. The fallout from the deal was immense with most of the company's staff laid off, and all turbine development, including the 10MW Britannia turbine, ceasing. The firm is now effectively reduced to a small team servicing the existing US fleet of Clipper's Liberty turbines.

Despite these setback, the bigger companies are unlikely to stop feeding on the smaller ones. According to Mercom, acquisitions are expected to continue in the US, Europe, China and India.

The question is whether this will outweigh the number of new companies that are being created in the wind business at the same time. If it does, then consolidation could be upon us.

ON THE HORIZON — TECHNOLOGY IN SERVICING

Looking ahead to potential future deals, there are predictions that Vestas' acquisitions of Upwind and Availon could be the tip of the iceberg. More independent services providers could be bought in by the big OEMs as they look to expand into other manufacturers' fleets.

Additionally, as servicing becomes more technologically advanced, it seems likely that many provider of remote control and Scada systems could find themselves on the shopping lists. It is believed there are several other acquisition targets in the predictive modelling and analytics space, as well as the service sector.

Wind technology components are another likely area for future buy-outs. Specifically, this could include onshore tower and blade designers and makers.

Senvion

One major deal that many industry observers believe could happen in 2016 is the sale of Senvion. When it was freed from Suzlon there were high expectations that it could move forward without the restraints of a cash-strapped parent.

In the event, CEO Andreas Nauen has left the business, and the company is being prepared for an IPO. There are also rumours that current owner Centerbridge is looking at selling the business with industry sources suggesting one of the Chinese manufacturers could be interested.

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