Analysis: Nordex-Acciona merger faces post-honeymoon challenges

EUROPE: The global wind sector woke up on 5 October to a new global turbine major, following the merger agreement between Spain's Acciona Windpower (AWP) and Germany's Nordex, exclusively dedicated to onshore wind.

Nordex claims the two companies complement each other, but there is some crossover

Sector and investor reactions have remained overwhelmingly upbeat. Yet, after the honeymoon, few doubt there will be "marital challenges, even potential pitfalls ahead", as warned Alberto Ceña, CEO of Spanish wind engineering firm Bepte. That is mainly due to "technology overlap", he adds.

The two partners expect final antitrust approval by March 2016, when their combined 2.8GW turbine order backlog will then immediately push the merged outfit to fifth place among global suppliers, they believe. Individually, both are currently well outside the top ten.

"Size today is a must," says AWP CEO Jose Luís Blanco, a view underpinned by GE's recent takeover of Alstom's energy business, including its wind turbines. "Many turbine clients insist you accompany them worldwide. Many require a top-five supplier. Many want both; that's what the merger has achieved," said Blanco.

Since the merger was announced, Nordex has set out its near-term financial targets, taking into account the affect AWP will have. By joining forces, Nordex is targeting sales of €4.2 billion in 2018 and an EBITDA margin of 10%. Individual 2015 sales targets are set at €2.4 billion and €1 billion for Nordex and Acciona respectively.

In the €785 million deal, stock-listed Nordex will acquire Acciona Windpower for €366 million cash and 16.6 million in Nordex shares (valued at €419 million). AWP becomes "a new 100% subsidiary of Nordex," Nordex CEO Lars Bondo Krogsgaard told shareholders.

But Spain's stock-listed Acciona Group, AWP's current holder (a world major wind developer with over 7GW installed), will become Nordex's single biggest shareholder, with a 29.9% stake. Germany's Skion group owns 5.7%. The rest is free float. Acciona is locked into that deal for three years.

Acciona, traditionally devoted to logistics and construction and, more recently, renewables generation, will hold two of the four chairs on the managing board. Blanco, representing Acciona, will double as COO and deputy CEO. Acciona will also hold two of six seats on the supervisory board. Krogsgaard will remain as CEO.

Merger or acquisition?

When asked whether the deal is Acciona's or Nordex's, both Krogsgaard and Dan Shreve of Make Consulting laughed the same off-guard answer: "Good question". Shreve — again echoing Krogsgaard — said the new Nordex "really does have the opportunity to be a real merger versus an acquisition per se". He contrasts it with other deals, such as Suzlon and Repower, Vestas and Neg Micon, and Alstom and Ecotecnia where the first of each respective pair "ate" the other.

The claimed "good fit" rests on supplying different turbine types to different regional markets. "There is little overlap and there will be no cannibalisation," said Blanco.

Nordex, which closed its US factory in a restructuring move last year, makes and exports turbines now only from facilities in Germany, employing around 3,000 people. Nordex said around 80% of its orders since 2014 were for Europe, though Turkey is a strong market for it, and Middle East and North African (MENA) countries are also targeted.

AWP, claiming 1,400 employees and over 6GW of wind turbines installed across 18 countries worldwide, has three turbine facilities in Spain, one in Iowa in the US (currently mothballed), and Simões Filho, east Brazil. It also makes its own blades in Spain. Around 94% of AWP orders this year are for the Americas, mainly Brazil and Mexico. AWP is also building a factory in India and has orders in South Africa's burgeoning market.


Still, there is some overlap, especially in Latin America, according to Make Consult's regional consultant Brian Gaylord. Both companies have at least one contract each in Chile and Nordex has been scouting on the ground for four years in Mexico.

Worse overlap rests in technology. Ceña points out that AWP produces 3MW class I, II and III turbines (high, moderate and low wind speeds, respectively). Nordex's 3MW range only lacks the class I segment, which is covered by its 3.3MW machine. The company also produces 2.5MW and 2.4MW machines for different wind classes.

Krogsgaard disagrees there is overlap. "This will make the transformation of the two companies into a single group easier and allow it to bear fruit quickly," he said.

Nordex's mainstay European clients develop small projects in densely populated areas. Its turbines are therefore "extremely sophisticated," often using carbon-fibre blades, anti-icing technology and "with Class B noise reduction; the best in the industry and a deal breaker with clients", claimed Krogsgaard.

Acciona's less advanced and cheaper turbines are better suited for remote utility-scale projects, said Krogsgaard. Nordex's last hundred orders are for projects averaging 20MW in capacity, while AWP's last ten average 100MW, he added.

Still, Blanco points to "indisputable synergies", which the partners value at €95 million annually beyond 2019. "Of that, 40% comes from sales with more and bigger clients," explained Blanco.

A further 40% comes from reduced supplier costs through extra negotiating power and greater choice. Of the remainder, most will come from combining research and development efforts and distribution networks, as well as Acciona's concrete tower production wing and its fibreglass blade division.

For the next three years at least the partners will continue without restructuring of existing production units. Branding is yet to be analysed," said Blanco. But, "eventually, there will be a common platform. Anything else would not make sense", added Krogsgaard


Meanwhile, observers ask which turbine manufacturers are up next for consolidation. Shreve points out that it could be the Acciona-Nordex merger itself. Indeed, some expect GE to swoop, following its Alstom-takeover.

After all, while the new partners are largely complementary, neither offers much outside wind to their big utility clients, such as nuclear, fossil-thermal power or large hydro.

Furthermore, the merger does not offer the chance to move in to offshore. A conglomorate like GE offers all that.