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Birth of independent maintenance firm -- Gamesa sheds a division

Spain's Gamesa, one of the global wind industry's most vertically integrated companies, has become less so after selling its thriving wind plant construction and operation and maintenance (O&M) businesses, Gamesa Energía Servicios (GES) and Siemsa Este. The companies, together with a combined workforce of 2150, go to Britain's 3i, one of Europe's biggest venture capital firms, for EUR 170 million -- extendable by EUR 10 million if a series of milestones is reached prior to handover.

The deal is pending approval by Spain's antitrust authorities. With Gamesa currently closing negotiations to shed its aeronautics division, the company is now almost entirely dedicated to both turbine manufacturing, through Gamesa Eólica, and wind plant development and sales, through Gamesa Energía.

The stated aim of 3i is "to grow GES as the largest independent global player in wind farm construction and O&M," as the company's Shaun Kingsbury puts it, including Siemsa activities under the GES umbrella. "We'll choose a new name shortly," he adds.

With around EUR 24.5 billion worth of investments made over its 60 year life, 3i is a major investor in upstream oil and gas. The GES deal marks its first major move into the midstream energy field, where it aims to focus further investment.

The company describes GES as already "the international leader in wind farm construction and maintenance." It says it was attracted by GES's "strong and experienced management team," which will remain on board." Combined, GES and Siemsa profit was EUR 11.1 million over 2005, from sales of EUR 210 million. Two-thirds of the business volume comes from wind, most of that through plant construction, "But a considerable amount also through O&M," says Kingsbury. However, 3i will also strengthen the other third of GES-Siemsa's business, mainly petrochemical and vehicle plant construction and maintenance.

Apart from building on GES's stronghold markets in Spain, Portugal, Germany and Italy, 3i aims to springboard budding business in the UK and, especially, the booming US wind market. The company also plans to build on GES experience in Egypt and Morocco. It has no deadline or fixed growth objective before selling GES on. "Right now, we're just focussing on growing it as much as possible," says Kingsbury.

Meanwhile, Gamesa's full intentions are less clear. Holding group Gamesa Corporación says disinvesting GES allows it to concentrate on its core businesses of turbine engineering, design and manufacturing together with developing and selling wind plants. But, at the same time, Gamesa will "continue to direct and manage" its wind plant construction and O&M activities, confirms the company's Belén Miguez. Exactly how it will do this given the sale of its construction and O&M division to 3i, Gamesa declines to confirm.

An explanation

Kinsgbury throws some light on the matter. Via a framework agreement as part of the sales deal, Gamesa will continue to be GES's biggest customer and the two will grow hand-in-hand globally. While GES has long-since built wind projects, not only for Gamesa but also for other developers and turbine manufacturers, technologically sensitive and confidential operations, such as plant commissioning, are left to the turbine supplier. Similarly, O&M work outsourced to third parties is usually at balance-of-plant level, mainly focussed on substations, whereas work on the turbine guts is controlled by the manufacturers themselves. Ga-mesa, however, declines to confirm whether or not it will retain a dedicated team to direct each job outsourced to GES.

As 3i builds GES's customer base, including other turbine manufacturers, the difference in its hands-on expertise between Gamesa and other technologies will become clearer. So too will the efficiency of Gamesa's outsourcing of all plant construction and O&M while keeping tabs on its technological secrets.

Meanwhile, Spanish analysts differ on whether or not less vertical integration is positive for Gamesa. After news of the sale the company's share price rose 7.75%, but that may also have been influenced by the imminent sale of the aeronautics division and a statement of further commitment to wind by Gamesa's single biggest single shareholder and turbine client, utility Iberdrola.

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