American Superconductor Corp (NASDAQ: AMSC) signed an agreement to acquire The Switch Engineering Oy, a power technologies company headquartered in Finland.
The EUR 190 million acquisition (US$265 million) is expected to be immediately accretive and support AMSC’s growth to $1 billion in annual revenues and operating margins in excess of 20% by fiscal 2014, the company said.
$186 million will be paid in cash and the remainder in AMSC stock. AMSC plans to finance the deal through cash flow.
Shares plunged to a 52-week low on heavy volume after the announcement, when the company lowered near-term guidance to absorb the acquisition.
Although short term financials will take a hit, the acquisition gives AMSC a key technology which will drive future growth.
The Switch manufactures permanent magnet generators, which eliminate the need for gearboxes and increase wind turbine efficiency by almost 10% for a 2 MW turbine. They could also be important in offshore turbines, because they won’t rust over time as traditional gearboxes do.
AMSC expects revenue growth to slow 5-10% this year before increasing again in 2012. It lowered guidance for FY10: revenue will be toward the lower end of its $430M-440M forecast range vs. the consensus of $438.89M. EPS was lowered to $1.31-1.35 from $1.33-1.38 vs. the consensus analyst estimate of $1.38.
The acquisition will also diversify AMSC’s customer base and channels to market. The Switch sells power converter systems and permanent magnet generators to wind turbine manufacturers in China, Europe, Korea and the U.S.
“Both AMSC and The Switch are well positioned in Asia, which is now the world’s largest and fastest growing wind power market. Our combined company is expected to be serving China’s three largest wind turbine manufacturers– Sinovel, Goldwind and Dongfang– in various capacities," said Greg Yurek, founder and CEO of AMSC. "The Switch will also significantly strengthen AMSC’s presence in Western wind markets with customers such as GE and create a new channel to market for AMSC in addition to our Windtec™ licensees.”
AMSC’s growth in recent years has primarily been driven by the sale of wind turbine core electrical components and full wind turbine electrical control systems (ECS) to Windtec licensees and strategic partners. The Switch provides a substantial existing channel for power electronics and control system sales to other global wind turbine manufacturers.
The Switch focuses on the production of power converter systems (PCS), which are a subsystem of full wind turbine ECS. By joining forces with The Switch, AMSC also sees the opportunity to further enhance the performance and reduce the cost of its PCS and ECS offerings. The Switch today offers PCS’s with power ratings ranging from 1 MW- 6 MW.
The Switch opens a new addressable market opportunity exceeding $1 billion annually with its portfolio of proprietary permanent magnet generators (PMG). PMG are a new class of generators that are used inside an increasing number of both geared and direct drive wind turbines. The Switch offers low-, medium- and high-speed PMG up to 6 MW in power rating.
These PMG systems, which already are being used by several companies in Europe, the U.S. and Asia, will extend the technology portfolio currently available to Windtec customers and increase AMSC’s potential value per MW of wind power. AMSC also expects to leverage The Switch’s strong background in advanced synchronous generators to commercialize superconductor generators for direct drive SeaTitan™ wind turbines.
For 2010, The Switch generated $179 million in revenue and $15 million in net income.
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