by Rona Fried, Ph.D.
Why would an emerging superconductor manufacturer buy an emerging wind company?
American Superconductor Corp. (NASDAQ: AMSC) is the leading “pure play” manufacturer of high temperature superconductor (HTS) wire and superconductor machinery – products that greatly contribute to electric grid efficiency and stability. AMSC also produces converters for alternative electricity generation, transportation, and for medical and industrial processing applications. The company’s trademark says it all: Revolutionizing the Way the World Uses Electricity(TM).
AMSC has signed an agreement to acquire Windtec, a privately held company based in Klagenfurt, Austria. Windtec develops and licenses proprietary wind turbine systems. The transaction is expected to close in January 2007.
Windtec has a unique business model for the wind industry – instead of designing and manufacturing wind turbines, it licenses designs for complete wind turbine systems including the electronics. Windtec receives an upfront fee as well as royalty payments for each installation of a Windtec-designed wind turbine system. The company also provides consulting services for its licensees who want to upgrade or optimize their wind turbine systems. Licensees normally purchase the wind turbine electrical systems from Windtec, which use AMSC’s PowerModule systems to control power flows.
WindTec provides a valuable service, enabling companies to quickly develop wind turbine manufacturing capacity while sourcing materials locally. Windtec’s customers and targeted markets include industrial equipment manufacturers and engineering construction companies in high growth markets such as China and India, who are addressing an unmet need for local manufacturers of wind turbine systems.
“During the past 18 months, Windtec has become the primary channel for PowerModule sales in China, and we expect that will soon expand to additional markets,” says Greg Yurek, CEO and founder of American Superconductor. “The close working relationship between Windtec and AMSC has made it clear that many sales and technical synergies exist between us in power electronics, electrical systems, wind farm grid interconnection solutions, and rotating electrical machines, such as wind energy generators. This acquisition will allow us to leverage our mutual capabilities and to also optimize our sales forces, field service teams and planned manufacturing operations in the Asia-Pacific region.”
“Windtec is capitalizing on a vast unmet need in the market,” says Chuck Stankiewicz, Senior Vice President of AMSC Power Systems. “The company’s wind turbine designs, including its new SuperGear(TM) technology, differentiate it from competing technologies. Its engineering services are in high demand and its licensing arrangements are unique. These capabilities provide us with a competitive advantage, particularly in emerging countries where local content is often government-mandated.”
American Superconductor also announced a new order from Windtec for PowerModule systems to be used to control power flow in 165 additional wind turbines in China. With this order, AMSC’s PowerModule systems will be powering 785 Chinese wind turbine systems and approximately 1,200 megawatts of China’s wind generated electricity.
“According to the Global Wind Energy Council, the installed base of wind generated electricity worldwide is expected to double from approximately 59,000 megawatts in 2005 to nearly 135,000 megawatts in 2010. We believe this acquisition will strongly enhance AMSC’s revenue growth in the wind energy market and speed the time to achieving overall corporate profitability,” says Yurek.
The Windtec purchase is an all-stock transaction of 1.3 million shares of AMSC common stock, valued at approximately $12.4 million. Sole owner and founder, Gerald Hehenberger will have the opportunity to acquire another 1.4 million shares of AMSC stock based on revenue growth targets through 2011. The transaction includes Hehenberger’s 27 patents and pending worldwide patents on wind turbine technology. A 20-year wind industry veteran, Hehenberger will remain with the company as Vice President and Managing Director of Windtec.
AMSC expects Windtec’s 2006 revenues to be approximately $13 million and its net income to be at least $1 million, a significant increase from 2005 revenues of $2.7 million and a break-even bottom line. The company has a $20 million in backlog that AMSC expects to recognize as revenues in its fiscal year ending March 31, 2008 with higher profit margins than in calendar 2006. Given Windtec’s revenue, the acquisition price of $12.4 million is quite reasonable at 1x revenue.
Based on existing backlogs and forecasts, AMSC expects its Power Electronic Systems division revenues, with the inclusion of Windtec, to more than double from approximately $22.5 million in fiscal 2007 to approximately $50 million for the fiscal year ending March 31, 2008. AMSC is not assuming any debt in the transaction.
The acquisition gives WindTec access to a stronger balance sheet and the resources to take on more substantial, complex projects, and gives AMSC a path to further develop its international presence, and status in the wind industry. The two companies have strong synergies and cross-selling opportunities.
AMSC is rated a BUY, with a price target of $13 by our research partners, Ardour Capital.
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Rona Fried, Ph.D., is president of SustainableBusinesscom, the online community
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