GE (NYSE: GE) announced that its Energy business has entered into an agreement to acquire approximately 90 percent of Converteam, a leading provider of electrification and automation equipment and systems, from a controlling shareholder group that includes management, Barclays Private Equity and LBO France, for approximately $3.2 billion.
The transaction, endorsed by Converteam’s management team and employee representative groups, is expected to close during third quarter 2011, subject to customary closing conditions. Converteam’s senior management will retain approximately a 10 percent stake in the company. GE and Converteam senior management have entered into agreements pursuant to which GE would purchase the remaining shares in the company over the next two to five years. The price for the shares can vary based on the time of sale, business performance and other factors. GE expects that the price should be no greater than approximately $480 million.
Converteam’s solutions enable customers in a variety of industries to replace or improve mechanical processes with high-efficiency electric alternatives that deliver better reliability, less maintenance and lower emissions. Converteam’s portfolio includes drives and other power electronics, advanced rotating machines, generators and controls that when integrated address three critical customer needs across a range of industries:
• Converting electricity into mechanical performance to power and control motion or industrial assets such as natural gas pipelines and gas gathering compressors;
• Turning mechanical power into grid quality electricity in wind turbine, thermal power or hydro power installations;
• Adjusting electrical frequency to precise user requirements, as in solar power inverters.
The multi-sector energy efficiency, electrification and automation industry, in which Converteam participates, was valued at over $30 billion in 2010 and is growing at rates above global GDP growth. Approximately 25 percent of the world’s electricity is used to power rotating machines in a wide range of industries and applications. Converteam’s high-efficiency solutions are designed to reduce the electricity consumption of rotating machines by nearly one-third, offering significant savings in terms of cost, energy intensity and greenhouse gas emissions. GE’s global reach and local expertise will improve Converteam’s ability to serve customers in high growth regions such as Brazil, Russia, China, India and the Middle East.
Building on more than 100 years of expertise in power electronics and automation technologies, Converteam operates across six key vertical sectors: offshore and onshore oil and gas, power generation, wind and solar renewables, industrial, marine and services. Headquartered in Massy, France, Converteam has 5,300 employees, including more than 1,600 engineers, and operates in more than 80 countries. Converteam recently announced 2010 sales of approximately $1.5 billion and EBITDA of approximately $239 million, with approximately 36 percent growth in orders versus 2009.
The Fit with GE:
Electrification: Critical to Efficiency and Reliability in the Oil and Gas Industry
Sales of fully electric solutions are expected to grow at 15 percent annually in compression applications within the global oil and gas industry. Electrification is a growing trend in the natural gas storage and pipeline transportation segments where utility and compression plant operators are faced with increased cost competitiveness, stringent emissions regulations and supply security pressures. In addition, fully electric solutions will grow in the global offshore exploration and production segment where spending has returned to 2008 pre-financial-crisis levels and is estimated at $490 billion in 2011 (up 11 percent versus 2010). The long-term offshore exploration and production sector growth will be significantly enhanced by the delivery of reliable power at the seabed, rather than at processing platforms 10s-of-miles away from oil wells, enabling production efficiency and increasing the amount of oil that can be recovered.
Bolstering GE’s Solar and Smart Grid Solutions Portfolio
Converteam’s products are widely used in the renewable energy sector, turning intermittent and variable power from solar, wind and tidal power generation into the high quality and reliable power required by grid operators throughout the world.
Power electronics is critical to bringing renewable sources, such as wind and solar, into the mainstream, delivering economies of scale and providing stable connection to the grid. The renewables industry is forecast to grow from 46 gigawatts (GW) in annual installations in 2010 to 56 GW in 2013. By adding Converteam technology, GE is well positioned to bring a broad range of integrated generators, converters and inverters, power quality and grid connection solutions to the onshore/offshore wind turbine and solar plant sectors.
The global demand for photovoltaics (PV) is expected to grow by 75 GW over the next five years, with utility scale solar power plants continuing to make up a significant part of that growth. By adding Converteam’s energy conversion technologies, GE will be able to broaden its portfolio of high-tech solar power plant solutions to better meet these demands.
Provides Critical Mass of Solutions in Metals, Mining and Marine
Converteam offers a broad range of electrical and control systems for optimizing processes across a variety of industries, and this will enable GE to advance its power generation, drives, remote monitoring and diagnostics and services solutions for the metals and mining industries. This transaction will advance GE Energy’s objective of scaling its metals and mining sector platforms to replicate the success achieved by its oil and gas and utility sector businesses.
In addition to these industries, Converteam supports the global marine industry’s merchant and naval sectors with power generation, electric propulsion and distribution and controls solutions. GE will grow this segment by utilizing its existing aeroderivative propulsion technology, global reach and cost competitive supply chain.
GE buys majority stake in Converteam for $3.2B