The “urge to merge” is accelerating in the smart grid market, according to a report just released by London-based Memoori Research.
In 2007, merger and acquisition (M&A) activity in the smart grid supply chain reached a cumulative $134 million. But by 2011, the value of M&A deals had mounted to $10.6 billion—and that number nearly doubled in 2012, with a year-end total of $19.5 billion.
The authors of the study, “The Smart Grid Business: 2012-2017,” believe the deals are driven by worldwide demand for next-generation grid technology, which they predict will create a market worth $2 trillion over the next 20 years.
The massive increase of nearly 84 percent in M&A action between 2011 and 2012 can be attributed to three major deals, according to the report. Among them:
- The acquisition of Cooper Industries, a Houston-based manufacturer of electrical components, by Eaton (News - Alert) Corporation, a Pittsburgh-based energy management company, for $11.8 billion
- The acquisition of Thomas & Betts, a Memphis-based low-voltage product manufacturer, by the power-distribution equipment manufacturer, Zurich-based ABB at $3.9 billion
- London-based investment firm Melrose plc’s takeover of Essen, Germany-based smart meter manufacturer, Elster, at $2.3 billion
“The first deal, in particular, has distorted the picture—because the total number of deals actually declined in 2012, to 45, from 55 in 2011,” the Memoori analysts said.
The structure of the business is currently skewed heavily toward the major international suppliers—a segment in which 26 companies shared sales of $81.9 billion in 2012—for an average revenue of $3.125 billion.
However, those 26 firms represented just 1 percent of the population of suppliers.
In 2012, cash financed 55 percent of all deals. Memoori expects this figure to climb to nearly 75 percent by 2017 as the volume of deals increases, but as the average price falls significantly. “Taking into account the distortion caused by the Cooper acquisition, and based solely on economic factors it would suggest that total M&A activity will remain flat; however we believe the underlining trend indicates smart grid acquisitions will continue to grow,” said the analysts.
Edited by Braden Becker