$1 Billion Acquisition Price Brightens Solar Outlook

Power-One Inc. is lighting up a solar energy industry that has dimmed in recent years. The planned $1 billion acquisition of the Camarillo manufacturer by Swiss engineering firm ABB Ltd. is not only a benefit to shareholders, but a sign say industry watchers that the luster could be returning to solar power generation. “This definitely isn’t something I expected, but it could be a sign of more things to come,” said David Yang, an analyst with Santa Monica research firm IBISWorld. “It shows that maybe people think the industry is starting to look up after some tough years.” ABB offered on April 22 to buy Power-One at $6.35 a share, a 57 cent premium from its closing price April 19, the last day of trading before the deal was announced. That premium comes despite the fact that solar panel manufacturers continue to struggle with a glut of cheaply-made Asian products. But, Yang said, it also highlights that so-called “downstream” companies, which install or make accessory parts, have seen fringe benefits from the price decrease. Power-One is one such firm. Its primary product is a solar inverter, which converts direct current into alternating current so that it can be connected to power grids and stored. And that, he notes, makes companies like Power-One an attractive option. “Power-One is benefitting from cheap panels because more people can afford to put in solar installations, but they all still need an inverter,” he said. “And that makes acquiring them a less risky proposition than acquiring, say, a panel manufacturer.” ABB certainly seems to think so. The Zurich-headquartered company, which already makes its own version of the solar inverter, is one of the world’s largest suppliers of power grids, and officials say the move positions them well for when solar eventually picks up again. “If you look at the combination here, this is really close to the perfect marriage,” said Ulrich Speisshofer, head of ABB’s discrete automation and motion division, in a conference call with investors and analysts following the announcement. “If you look at what Power-One brings, it’s a wonderful product portfolio… We also bring in some very important markets.” While 70 percent of Power-One’s business is in Europe, which has suffered a solar slump as governments ended lucrative subsidies in the last few years, much of the newly-merged company’s success is going to depend on ABB’s existing reach in India, China and other Asian markets. “There are definitely still going to be some tough times for solar,” Yang, the analyst, noted. “But maybe this will help them both through it.” The deal Still, many analysts were surprised by the companies’ announcement, but the deal appears to have been in the works for quite some time. ABB Chief Executive Joseph Hogan told analysts on the conference call following the announcement that his firm had been working with Power-One and its chief executive, Richard Thompson, for several years, but decided the time was right for an acquisition in recent months. But Power-One has been making moves of its own in recent months, including a deal to pair its inverters with lithium batteries made by electronics giant Panasonic Inc. of Osaka, Japan. It also previously announced independent plans to expand into India. But analysts say several things likely made the deal attractive to both sides. While ABB makes its own inverters, Power-One is still the larger player in that market. The company is the No. 2 manufacturer of the product, behind German firm SMA Solar Technology AG, while ABB’s own efforts in the niche don’t make the top 10 list. But ABB installs lots of power grids, all of which need inverters, making barriers to market entry much lower for Power-One. And on the financial side, Power-One really isn’t that risky, say analysts who watch the company. “They have really smart management, who has really made the right moves and focused on product development and strategy,” said Carter Driscoll, a senior research analyst in clean technologies at Irvine firm Ascendiant Capital Markets LLC. “And they have been profitable.” Power-One is debt free, generating cash and has $266 million in the bank. Last year it turned a profit of $120 million on nearly $1 billion in sales. Menlo Park private equity firm Silver Lake Sumeru, the company’s largest shareholder, has said that it will vote to approve the deal, according to company officials. The deal is expected to close in the second half of the year, assuming investor and Securities and Exchange Commission approval. Moving the market Now, the two companies will work together to penetrate the South American, African and Asian markets. Power-One has made inroads in some Asian markets. Thompson said ABB’s infrastructure will make it easier to do so. “Each time we entered into the new geography, we had approximately one to one-and-a-half years to profitability as we set up legal entities, hired a staff, created a service organization within that country,” the chief executive said following the announcement. “Once we merge together, ABB is in over 100 countries.” Both companies have said that the merger will minimally impact staff, however. Power-One employs 56 people at its Camarillo headquarters, and more than 3,200 internationally at locations in Italy, Arizona, China, Slovakia, and Switzerland; along with domestic locations in Phoenix and Carlsbad. And while solar installations have slowed in the last few years, especially in Europe, industry watchers are once again expecting growth, even if it is slower than in previous boom years. Even in the domestic market, a research report sponsored by the Washington D.C. trade group Solar Energy Industries Association has predicted a 29 percent growth rate of solar installations this year. That’s going to mean a lot of inverters. And solar is a predictable, proven model for alternative energy, says Michael Barker, a senior analyst at Santa Clara research firm NPD Solarbuzz. “The PV installation market is successful because of its history, the maturity of the technology,” he said. “And there are going to be a lot more installations in coming years.”