Nordex acquisition could pressure major rivals

The German wind OEM inches closer to the top three and could pressure Vestas, Siemens Gamesa and GE on the largest projects if Acciona acquires full ownership, WoodMac assesses.

Photo: Pascal Rossignol/Reuters/Ritzau Scanpix

Tuesday, Nordex announced a capital increase of EUR 99 million. Meanwhile, this isn't necessarily the only enlargement the German wind turbine maker will undergo. Seeing as the money stems from Acciona, which already owns 29.9 percent of Nordex stock, the Spanish utility will now have to present an acquisition offer for the entire company, according to stock exchange rules.

Provided Acciona takes over all of Nordex, this will place the German firm significantly higher up in the turbine manufacturer hierarchy, where Vestas, Siemens Gamesa and GE have been increasingly more dominant in recent years, according to Wood Mackenzie Principal Analyst Shashi Barla.

"The top three among Western turbine makers are in a favorable position in the near future, with Nordex a bit distanced in fourth place. But this will undoubtedly help close the gap," he says.

A major balancing act

The reason is relatively straightforward. With a balance of around EUR 15 billion, Acciona is roughly 15 times the size of Nordex. It's a big help to be backed by a major company on a market where larger single projects contribute to ensuring that turbine makers get advantages of large-scale operations, which can manage costs despite the requirement for faster development of new turbine types.

"The other turbine manufacturers develop projects of more than 1 GW in Scandinavia, Australia and auction markets like Russia and Turkey. During the past 24 months, Nordex might have won a couple of projects that have indeed been bigger than what the company has otherwise worked on. But we still haven't seen it able to match that level," Barla says.

"But access to the parent company's balance and capital injections will help Nordex enter those markets and work with those project sizes."

Been following the build-up race

That Nordex needs a shot in the arm for other reasons is clear. Last year, the wind OEM delivered a net loss of EUR 92.6 million, and halfway through 2019, the deficit is bigger than at the same time one year prior. And the company's own full-year expectation for an EBITDA margin of 3-5 percent doesn't necessarily bode much better than 2018, which saw it landing at 4.1 percent.

Besides the general pressure on turbine makers' margins, Nordex has been impacted harder than most by the downturn on its domestic German market. Abound one third of its revenue stems from there.

Compared to soon-to-be defunct local rival Senvion, however, there are certain differences. Partly, Nordex has managed to keep up with the global build-up race, in which the most recent model launched was a 5MW turbine with a 163-meter rotor in August. Partly – and especially due to the new, bigger turbines – Nordex has had better luck with its expansion into the wider world meant to compensate for domestic difficulties.

Well positioned to hijack major customers

During the past year, the turbine maker has secured some noteworthy orders. Last July, Nordex bagged its largest order to date in Brazil, amounting to 595 MW, and last November, a 475MW project was signed in Sweden, while the company's hitherto largest single US order for 350 MW came in July. Just as sensational, however, is that the customers were all on project developers' A-list: Enel, Eon and Duke Energy.

"I won't be surprised if other utilities of the same caliber choose to source from Nordex. Developers would most certainly like a fourth supplier to fall back on if there is a possibility of reducing costs," the principal analyst says, nodding at the common conception that the German company is cheap.

"Nordex most certainly doesn't provide best-in-class technology, but from a cost perspective, it's a competitive technology. Today, there will probably be some hesitation as regards developing major gigawatt projects using Nordex turbines, but if the company's backed by Acciona, that will definitely put them in a favorable position."

Manufacturing developer

Whether Acciona's acquisition offer, demanded by stock exchange rules, will end with an actual acquisition, is difficult to say. The purchase of 10 percent of the stock at EUR 10.21 wasn't exactly overpriced, considering Tuesday's opening price of EUR 10.85.

If the acquisition is completed, this will also bring Acciona in a strange position. The utility already owned 29.9 percent of Nordex stock, since 2016, when the Spanish firm divested its production unit to Nordex. An acquisition, meanwhile, will once again make the company a wind turbine manufacturer.

Conversely, this might also make Nordex a project developer. A title that, for instance, Vestas is very careful not to assume despite its so-called co-developer business, as the company has no interest in posing as a competitor to its customers. However, the WoodMac analyst assesses this won't become a problem for the company in case of full acquisition.

"It's a matter of whether Acciona will control Nordex according to an arm's length principle," Barla assesses.

"But everyone is aware that Acciona already owned 29.9 percent prior to the capital increase. The difference from there to 100 percent is probably not big. Moreover, Acciona hasn't developed more than an annual 300-400 MW in recent years. If one of the biggest project developers like Iberdrola or Enel had acquired Nordex, that would be a major concern to other developers, but I don't think that worry is present here."

English Edit: Jonas Sahl Jørgensen

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