ANALYSIS - Ongoing wind M&A creates sub-market for unwanted technology, capital assets

The ongoing M&A activity in the wind energy sector, which Totaro predicted would continue over six months ago, is creating an interesting and under-appreciated situation. As companies seek to combine for market share and balance sheet strength, there are some existing and proposed combinations which have resulted in some "leftovers" which are not desired by the combined company, but remain attractive within the industry.

GE / Alstom

With GE favoring their turbine platforms vs. Alstom for Europe and potentially Latin American projects, the legacy technology assets related to Alstom / Ecotecnia represent a fair opportunity for field proven and certified onshore technology. An extensive portfolio of technology and intellectual property assets in the form of designs and patents around this technology will be a coveted prize.

More importantly, as with some of the other recent deals, the manufacturing facilities which may become less utilized as a result of the consolidation appear to represent an attractive investment opportunity for Chinese OEMs and sub-component suppliers. Flush with cash from the recent market success in China and anticipated growth, many Chinese companies are seeking to push into markets such as Mexico, Turkey, Poland, Brazil, the US, along with targeted.

While a combined GE / Alstom may have excess capacity to shed, the entire market is not necessarily in an oversupply situation for all components, so realignment of that spare capacity will likely save a new owner a significant CapEx investment as they seek to expand while simultaneously reducing GE's ongoing maintenance and amortization costs for their underused infrastructure.

Nordex / Acciona

Acciona is seeing strong sales in Latin American markets with their turbine platform, but commonality of some turbine components will encourage a drive towards platform unification with Nordex and the inevitable supply chain efficiency which would be gained.

As before, manufacturing facilities in Spain, Germany, Brazil and the USA could end up with excess capacity that could be sold or even farmed out to the right partner.

Certainly, any Chinese OEMs and sub-component suppliers who desire to shift West will need to evaluate these available options. This excess manufacturing capacity may also lead to joint production or JVs between Western asset owners and Chinese suppliers.

Many western companies still seek inroads into the lucrative Chinese market, but for any Western company to be truly successful in China, they are likely going to have to merge with or acquire a Chinese OEM.

Siemens / Gamesa

Now with a proposed tie-up between Siemens and Gamesa, we see a modest amount of supply chain efficiency to be gained as the product portfolios of Siemens and Gamesa do not directly compete, and they also do not completely overlap. With little opportunity for supply chain cost efficiencies, this proposed deal is likely to represent a desire by Siemens not to lose the battle of scale as the Chinese OEMs continue to grow in stature and market share.

Although numbers on global 2015 have not yet been officially released, it appears that several European OEMs who have previously enjoyed top 10 status are being dropped down the list in favor of their Chinese counterparts. This also largely mirrors our previous analysis on the rise of Asian innovation.

Nevertheless, if the deal between Siemens and Gamesa actually happens, could we see Winergy as the primary gearbox supplier to Gamesa, resulting in some displacement of ZF?

What becomes of the G10X onshore platform which has seen only modest sales in Europe thus far? With a turbine architecture and size at 4.5 MW - 5.0 MW that was ahead of it's time, there are many innovations which were developed which could represent significant competitive advantage for Chinese OEMs if in-licensed.

These represent just a few of the relevant opportunities out there for growth and expansion.

Indeed, there is more M&A news to come this year as companies look to sustain their market share by adding scale in a (hopefully) complimentary way. The resulting realignment of capital and technology assets will prove competitive and decisive for companies who will prove their long-term staying power vs. short-term sensationalism.

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