A well-timed purchase

Private equity firm Centerbridge Partners’ €1 billion all-cash acquisition of Senvion – a German subsidiary of India’s Suzlon, the world’s fifth-largest turbine manufacturer – has all the hallmarks of a well-timed deal.

For starters, Senvion is not the kind of non-core asset that companies like Suzlon try to unload to atone for their past acquisition sprees. It is, rather, the kind of core asset companies are forced to sell when they are so highly indebted they have little choice but to do otherwise. Suzlon certainly tried to hang on to the turbine maker, exploring both a partial sale and a public listing as alternatives to a full divestment, but neither worked out.

That’s good news for Centerbridge, which managed to buy a prized asset for €400 million less than what Suzlon paid for it back in 2007 (although Suzlon chairman Tulsi Tanti has told Indian media that rupee depreciation of 20 percent over the last seven years means Suzlon actually lost little to no money on the deal). It also buys a company which, according to a Suzlon presentation, has seen revenue grow four-fold since acquisition, with profitability increasing eight-fold.

Perhaps more importantly, Centerbridge is buying a leading wind turbine manufacturer just as the wind market looks set to pick up after a turbulent last few years. Over the past 24 months, more than 120 suppliers either quit or crashed out of the wind industry, according to a new report from FTI Consulting. But data from Bloomberg New Energy Finance (BNEF) shows the market might be turning a corner, with investment in the sector growing 11 percent in 2014 to a record $99.5 billion.

Wind installations in the US grew six-fold last year, thanks to the extension of a key tax break, making it the world’s second-largest market with 4.7GW installed. Offshore wind, an area where Senvion is strong, hit a record $19.4 billion in investment last year. Europe is driving that market, with seven multi-billion dollar projects reaching the final approval stages in 2014, including a 600MW, $3.8 billion offshore wind farm in the Netherlands.

Of course, China still dwarfs pretty much everyone with its 20.7GW of wind power installed in 2014, a 38 percent increase in installations compared to 2013. So big is the Chinese wind market, in fact, that BNEF predicted just the operations & maintenance (O&M) opportunity could be worth $3 billion annually by 2022. Last year alone, about 1GW was repowered across the globe with new turbines installed on existing projects, further highlighting the potential of the global O&M market.

Again, that’s good news for Centerbridge, because O&M is emerging as an area where wind manufacturers are able to get bigger margins, a wind sector asset manager points out. With the price of wind turbines continuing to be low, manufacturers have turned their attention to clinching profitable maintenance contracts, which are being lengthened to as long as 12 years, with costs increasing over the life of the contracts.

For Centerbridge, which closed a $6 billion fund last October to focus on private equity and distressed-for-control investments, Senvion seems that rare opportunity: a trophy asset, available at a bargain price, operating in an underperforming market that is about to experience an upturn.
Fair winds indeed. ?

Bruno Alves is the editor of sister publication Low Carbon Energy Investor. He writes a monthly column on private capital’s engagement with new energy markets.