Clipper's $206million deal with UTC could take it into the big league

In December, UTC paid $206 million for new equity in Clipper and a bought further $64 million in equity from existing shareholders. While it represents a major infusion of capital and corporate heft into Clipper, it is a relatively small investment for UTC in light of its yearly revenues averaging $58 billion.

Speaking anonymously, a financial analyst who tracks UTC says that the deal will have little or no material impact on UTC but he calls the deal very well researched and a good fit between the two companies.

"Indeed, the acquisition is minor and relatively risk free for UTC," says Matthew Kaplan, an analyst for Emerging Energy Research, "but the deal comes at a critical time for Clipper, based in California and trading publicly on the UK’s Alternative Investment Market."

I think it’s a very important investment for Clipper, says Kaplan. Without this deal, Clipper’s balance sheet was pretty weak, its orders were not very strong. It had very significant order book growth in 2006 but recently Clipper’s order books had not really grown a significant amount. Add to that Clipper’s teething problems bringing its technology to market.

During the initial roll-out of its 2.5 MW Liberty turbine in past years the company discovered mechanical problems that required study and remediation in some areas of the drive-train and a major repair on a fleet of its already installed blades. The company says some bumps in the road were not a surprise for a start-up company and the issues have since been resolved.

But to top it off Clipper -- as with all other turbine manufacturers -- suffered in the economic downturn in the wind industry and had to lay off some employees, lower production, and defer some turbine orders.

"So Clipper really needed a strong partner that has some familiarity and technological expertise and the balance sheet to bring it through a difficult time for the company," Kaplan says.

Potential synergies are of expertise are clear. UTC runs a number of highly sophisticated and profitable businesses and knows how to spin steel with aerospace precision. Among its major holdings is its Sikorsky helicopter division, which provides the US military with the famed Blackhawk helicopter.

UTC manufactures world renowned jet engines with Pratt & Whitney and gas turbine generators and Carrier air conditioners and its has been in the fuel cell industry for decades.

In each of these units the company knows how to manage technology and improve reliability. UTC has been involved in renewables with concentrated solar power, geothermal, and a small historical connection to wind through its Hamilton Sundstrand unit, but these were minor endeavours.

"It sort of skipped the wind boom entirely and this represents UTC taking a taking a step back to going to a more mature renewable energy technology," says Kaplan. "If UTC is able to help Clipper prove its technology and develop a good track record and boost up balance sheet it could be in a very strong position."