The deal was brought to life by a Copenhagen stockbroker which last summer passed on the word that Nordtank was up for sale to UBS's new Private Equity Investment team in London. Nordtank became the team's first Scandinavian conquest. The purchase of Denmark's second largest wind company -- 75% by UBS and 25% by Nordtank director Vagn Trend Poulsen -- was sealed on December 31. UBS, with $150 million in capital, is one of only a handful of banks with a triple-A rating. The largest European stockbroker and a specialist in asset management, pension funds and corporate finance, the bank does not invest in new fields lightly.
"Wind energy is a business which is difficult to immediately understand. It has had a lot of bad press around it and this has caused others to be very careful with the way in which they have looked at it," says Göran Diedrichs, a Swedish national who heads the private equity investment team in London and now the Nordtank board. "Is this an industry or just a function of the green movement? We hesitated and discussed it very thoroughly internally. We found the business interesting but it required that we did a whole study of the wind industry and of Nordtank."
UBS's first contact with wind energy might have been co-incidental, but the decision to buy into Nordtank was certainly no accident. For six months UBS delved into not just the company, but into the entire wind energy business, studying the technology, the competition, the market and wind power's future prospects. It became the first commercial organisation outside wind energy to put money into commissioning not just one, but two independent studies of the business. With these in its hands, UBS then went to work verifying the findings put forward by Garrad Hassan of England and BTM Consult in Denmark. "We talked to utilities in the UK, Germany, the US, France and Finland. We talked to ministries of energy. We talked with investors -- the banks who have put money into wind as well as individuals," says Diedrichs. "We came out with a total package which says 'yes.'"
The six month scrutiny culminated in a report, the title of which neatly sums up UBS's official conclusion: Wind Power Generation -- A Growth Industry.
Diedrichs is not concerned that the wind energy market of the future is seen by many to be overly dependent on political whim. "If we go back and see what was happening in the eighties it was the green movement. Today we see that interest in protecting our environment is a cross party interest. The political backing is here to stay," he says. "There are many industries which are supported by government and would not survive without government support. This risk does not apply just to the wind industry."
With a background in running industrial corporations, Diedrichs has considerable experience of assessing industrial potential. He is clearly impressed by wind power. "This industry is still in a stage of very fast development," he says, with a glint in his eye. Sketching an imaginary and steeply rising growth curve in the air with an outstretched forefinger, he smiles: "We have not yet reached a plateau on the upward curve."
Not a takeover
For the private equity investment team in London, Nordtank is its second acquisition, the first being a textile company in Holland. Nordtank was bought from the Rørbæk Jensen family -- local people who founded the company in the east Jutland countryside in 1962 as a manufacturer of tanks for transporting petroleum products. By the end of 1993, with a decade of wind turbine manufacture behind it, Nordtank was named the fourth fastest growing company in Denmark based on turnover, export growth, employment and profits.
Diedrichs is anxious to stress that UBS's private equity investment policy is not to conduct company takeovers, but to find companies with good growth prospects and assist them to grow larger. The bank states in its literature: "UBS's investment in a company will probably last for between three and seven years, after which the company should be ready for capital from other outside sources -- such as a stock exchange listing. UBS would assist a company go public." As a concept, private equity investment, part of the bank's corporate finance service, is relatively new at UBS. It was started as recently as 1989 in recognition of the shift in international financing, where banks and fund managers were withdrawing resources from smaller companies. Wind energy is not the only business to have had a hard time finding finance in recent years.
The intention at Nordtank is for Diedrichs and Poulsen to work in tandem, with Poulsen using his board chairman as a much needed sparring partner. "We will work on strategic issues together," says Diedrichs. A three year plan has already been laid, with both Nordtank's existing working relationships -- with Elsam Project (a division of Danish utility Elsam) and industrial conglomerate Thyssen Rheinstahl Technik of Germany -- seen as extremely important elements.
"We will look at how to develop Nordtank -- whether this is to be through organic growth or by some other means. It if proves that we can grow by acquiring other companies, then that will be considered. But the aim of UBS is not to take part in the re-structuring of the wind industry -- it is to make Nordtank the best wind turbine company in the world," says Diedrichs. There are no plans to move production of Nordtank turbines out of Denmark.
In any private equity deal, UBS is the majority shareholder. The bank's remit is not only to assist with advice, but also to "introduce management to its international contacts to try and ensure the success of the venture" and provide finance. However, says Diedrichs, this does not mean that Nordtank has access to an open UBS coffer. "We will present suitable projects to UBS and ask if they will finance them. But we are a very conservative bank and we will look closely at the merits of each project," he warns. He points out that Nordtank already has good contacts in the Danish banking world and there is no need to sever these.
Once UBS decided to take a serious look at wind power it sought answers to a series of questions. "What makes somebody select a certain type of windmill? Is it capacity? Reliability? Service? Aesthetics? Reputation? Finances?" asks Diedrichs. "We also needed to know Nordtank's position in the market place and asked each consultant to rate all the main companies on a scale of one to five."
Accepting advice from consultants with a vested interest in making the wind industry appear profitable -- because it is also in their interests to attract a big player like UBS onto the wind scene -- did not worry the bank. "Of course we are aware of that problem. We were very cautious that they were going to paint too rosy a picture. But at UBS we can't be experts at everything and have to rely on outside consultants. The consultant is always going to try and make you happy and it is difficult to find somebody to look at it with objective eyes. You have to be very careful." With a dismissive shrug, Diedrichs adds: "Even if we say the market prediction figures put forward were considerably inflated, there was plenty of margin for growth."
Not only the market, but also the technology was put under the UBS microscope. "We wanted to be sure that the current concept would be maintained -- that we weren't going to capture the wind with something completely new. We will see an increase in size; we might see more efficient generators, ones that will be specifically developed for the wind turbine industry; we'll see integration between gearbox and generator, or no gearbox at all; there will be more electronic controls; we may see a change in whether it is going to be stall regulation, pitch regulation or variable speed instead of fixed speed. But the concept will remain," he assures. "I think we are into a situation where we might see development coming much more rapidly than you think."
But it will not be a problem-free future. "The industry has its responsibilities and it must be careful. Where are they going to site these machines to avoid noise or visual nuisance? How reliable and effective are they? Are they cost efficient?" questions Diedrichs. Project financing will also remain a major problem for the time being, because of the perceived risk associated with wind power, he says.
Nonetheless, Diedrichs firmly believes that wind has a role in energy supply -- although not as a competitor to conventional technologies. "They are not competing, but complementing one another. For example, wind plant cannot be built in the middle of centres of population. They will be put up where we need smaller amounts of additional energy in outlying areas. There it is going to be faster to install and in many cases more economical," says Diedrichs.
"The wind industry has to integrate itself into the energy industry and see itself as part of it and find its true position in the electricity sector. It has to work together with other industries in the same sector so there is a balance in the whole thing."