GE has announced its intent to purchase LM Wind Power, a Denmark-based manufacturer and supplier of rotor blades to the wind industry, for $1.65 billion in an all-cash deal.
According to GE, the deal insources wind turbine blade design and manufacturing for GE’s Renewable Energy business, improving its ability to increase energy output and create value for onshore and offshore customers.
LM Wind Power had previously been owned by Doughty Hanson, a London-based private equity firm.
GE states that this acquisition is valued at 8.3 times pro forma earnings before interest, taxes, depreciation and amortization, according to a 2016 estimate. GE expects to close the transaction, which is subject to customary regulatory and governmental approvals, in the first half of 2017 and expects the acquisition to be accretive to earnings in 2018.
As the cost of electricity from renewable sources continues to decline and nations pursue low-carbon forms of energy, renewable sources are gaining share in power generation capacity. In 2015, approximately 50% of all new electricity capacity additions were renewable energy sources, with wind representing 35% of that growth.
Jérôme Pécresse, president and CEO of GE Renewable Energy, said, “Increasingly, wind turbine innovation is driven by system design, materials science and analytics – all elements of the GE Store. We, along with LM Wind Power, have a deep pipeline of technical innovations that can further reduce the cost of electricity. With our combined global footprint, we can build flexible solutions for customers around the world. This combination will help sustain growth in the wind power industry.
“Simply stated, we’ll be more local, have more flexibility and knowledge in turbine design and supply, and more ability to innovate and reduce product costs while improving turbine performance. We will also develop enhanced digital and services capabilities – all of which will be good for customers, competition in the industry and the growth of wind power globally.”
GE Renewable Energy is expected to sustain solid growth in margins and returns over the next few years. Further, the company says the integration with Alstom Power is on track and global demand is robust.
Following the closing of the deal, GE intends to operate LM Wind Power as a stand-alone unit within GE Renewable Energy and will continue to support all industry customers, with the aim of expanding these relationships. LM’s major customers in order of capacity are GE, Gamesa, Goldwind, Acciona and Envision.
The companies note that GE will also retain the ability to source blades from other suppliers, and LM Wind Power will continue to be led by its existing management team and be headquartered in Denmark, where it also maintains a global technology center.
The deal sent shock waves through the industry. Jesse Broehl, senior research analyst for Navigant Research, stated, “This acquisition represents a major shake-up in the global wind market on a number of levels.”
LM is one of the most respected independent blade manufacturers, with the capability to produce almost 10,000 blades annually – or around 6,300 MW of capacity. This is approximately 17% market share among the 18 global independent wind blade manufacturers.
Up until now, Broehl said, GE has outsourced 100% of its blade capacity, with LM as its largest supplier.
“Most turbine OEMs favor a blade sourcing strategy of ‘make and buy,’ which blends in-house supply with outsourcing to guarantee supply while maintaining flexibility,” Broehl said. “So, bringing production in-house is a strategy for GE to ensure critical blade supply with a make-and-buy sourcing strategy.”
How this will affect other players depends partly on how much of LM’s manufacturing capacity will be allocated to GE, noted Broehl.
“In general, there still is an oversupply globally of wind blade manufacturing capacity, but this will probably tighten supply among the western wind turbine OEMs, as a blade company under GE’s control is not as likely to continue selling blades to GE’s competitors – or at least not at the same capacity levels if GE increases its in-house sourcing from the company,” he stated.
However, Broehl said there are examples of acquisitions of companies in which the acquired company continued to sell to the competitors of the new parent company. As an example, he cited Siemens’ acquisition of gearbox manufacturer Winergy in 2005. Since then, he noted, Winergy has continued to sell large quantities of gearboxes to Siemens competitors.
