Analysis: ABB's Power-One acquisition

Were you surprised by the news on Monday of ABB’s acquisition of Power-One?
It wasn’t completely unexpected, but I probably wouldn’t have named Power-One or ABB, or linked those two companies. Certainly we’ve been saying for a long time that we expected one of those industrial manufacturers to aggressively enter this market. Certainly acquisition is a pretty sensible way to do so. Power-One makes a lot of sense for ABB, it compliments them pretty well. So it wasn’t a surprise, but I hadn’t actually named those two companies as the next pair.
Why do you say that Power-One suits ABB so well?
ABB has a lot of expertise in large industrial inverters and that’s where they’ve begun to make some progress in the market. Power-One, although it does have some large inverters, has a pretty complete portfolio of three-phase and single-phase inverters. Really the combination of Power-One’s expertise, on those products, with ABB’s expertise, in the larger products, combined with ABB’s international footprint, in terms of sales, servicing and manufacturing operations, and its financial strength and reputation really creates a pretty strong offering.
The appearance of Power-One in the photovoltaic market and its growth and progress up the inverter rankings has been impressive. What do you attribute its success to?
It’s important to note that Power-One entered the photovoltaic market with an acquisition itself. They bought an Italian inverter called Magnetek, about five years ago. From there they had a very strong hold on the Italian market, which quickly grew to become the second largest photovoltaic market in the world at that time. And Power-One’s market share in Italy was pretty significant, they were the number one supplier there by quite a long way.
At the same time, Power-One was pretty successful in setting up manufacturing outside of Europe and penetrating the markets as well. They were pretty strong in Germany and other European markets, as well as Asia and North America.
Looking at the financial strength of Power-One, with cash reserves in excess of US$200 million, do you think the price ABB paid for Power-One is about right?
Certainly Power-One’s financial situation was fairly strong, ABB is a very strong industrial company. It seems to make sense without going very deep into the numbers. My first impression was that given the share price ($6.35/share) ABB paid, it does seem high, but I’m sure ABB has thought long and hard about the acquisition and it’s certainly not a decision that’s been taken overnight.
ABB CEO Joe Hogan, in announcing the news, spoke about the risks posed by the acquisition. There are risks in any deal, but what in particular do you think he was talking about?
I would say it’s the photovoltaic market in general. There are risks involved in any move in the photovoltaic market. We’ve seen rapid changes in the market environment occur almost overnight, caused by something as simple as one political opinion. Things like that can really rock the whole photovoltaic industry. When you observe the collapse of the Czech and Italian markets in 2010, that set a decline of photovoltaic module prices going that lasted two years and we’ve seen prices decline almost by 60%.
Those challenges haven’t gone away for the photovoltaic industry yet. We have seen the industry become more diverse and it is becoming more stable and more and more countries account for a more significant proportion of the market. However, the photovoltaic market remains a very volatile environment. While we have seen some consolidation, it remains a highly competitive environment. So ABB’s move is by no means a guaranteed winning move.
How much strength do you think the ABB brand will now bring Power-One’s offerings?
I do think that without a doubt the combination of the two companies is stronger than the two companies were before. ABB’s brand recognition and strength is key to that. Power-One has a fantastic set of products, ABB has a great set of products for one particular market segment. There’s no massive change in market share: ABB’s was only 1%, so there won’t be a major change in rankings. But it’s a very compelling offering when you combine the expertise of both companies and the product portfolio they now have.
To use a word that is thrown around all over the place in the photovoltaic industry, the bankability of ABB on paper is incredibly strong – possibly the strongest in the photovoltaic industry. (ABB ended 2012 with $8.5 billion in cash, equivalents, marketable securities and short-term investments; it has $10 billion in short and long term debt. The company generated full-year revenues of $39.9 billion, which earned a $2.8 billion net profit last year.)
What are the next steps for the companies now and where do you see them being placed in the future?
It’s going to take ABB and Power-One some time to figure out their strategy, their combined portfolio and how the company moves, going forward. They will obviously want to sort that out as soon as possible, to ensure there isn’t uncertainty with their customers and to ensure they don’t lose any momentum because of this.
Ultimately I see them taking their new product portfolio and leveraging ABB’s strength in new and emerging markets, such as South America, India and Japan – where ABB already has sales, marketing, servicing, manufacturing – for all its other product lines. So I see the new firms aggressively entering these markets. The global footprint of ABB is a huge strength to the two companies, ABB will be massively well placed to serve those emerging markets.