ABB puts Power-One’s traditional power conversion unit on the block; sale forms part of ongoing portfolio rationalization
ABB Ltd. is in the process of selling the traditional power conversion part of Power-One Inc., the renewable energy and energy-efficient power solutions company it acquired for USD 1bn last year, an industry source and sector banker said.
California-based Power-One, which in 2010 had formed two separate 'strategic business units (SBUs)' designated as Power Solutions and Renewable Energy Solutions, has under ABB begun focusing its resources on the latter SBU. The industry source said that it was for this reason that the Swiss automation and controls group had initiated the sale of the Power Solutions SBU, which makes AC/DC and DC/DC power conversion products, network power systems and digital power technology sold into the networking, storage, server and industrial markets.
The source had stated that the Renewable Energy Solutions SBU, which makes inverters and related infrastructure products for the solar and wind markets, was not part of the sale process. However, a clean separation of the two SBUs could raise complicaions arising from the fact that, according to Power-One’s catalogue, some of the hybrid converters produced by Power Solutions have applications in renewable energy, including solar and wind.
It was reported in early February that units of Power-One as well as the Tennessee-based electrical components maker Thomas & Betts which ABB acquired two years ago for USD 3.9bn were both part of a wider non-core disposal process involving four separate businesses that could yield proceeds of around USD 1bn. The divestiture of Power Solutions, comprising the more commoditized part of ABB's worst performing division, made sense because it was a low-margin business, the sector banker said.
The industry source said that it was his understanding that ABB had received interest in Power Solution from both private equity firms and strategic buyers, with the possibility of an employee led buy-out also being in the mix.
The banker said that he would expect the unit to generate strong strategic and private equity interest, narrow margins notwithstanding. He said that he typically approached PE firms first when selling businesses and noted that there were several PE firms with energy infrastructure portfolios, although he declined to single out any by name.
The industry source said it was his understanding that Power Solutions’ revenues easily exceeded USD 100m and could reach USD 200m, depending on its recent performance and the value of revenues associated with the licensing of its technology.
However, the likelihood of it outperforming appear to be limited. ABB’s CEO, Ulrich Spiesshofer, revealed during the company’s 13 February earnings call that an action program was being implemented within its Power Systems division by the Executive Committee member in charge, Claudio Facchin. This initiative had been set in motion by the “bad news” that ABB had released to the market in relation to its Power Systems division a few weeks previously, namely USD 50m in additional restructuring charges. The company’s CFO, Eric Elzvik, had estimated during that same call that weakness emanating from its Power Systems division accounted for two-thirds of the reduction in the company's expected/potential future business.
The CEO had also said that from ABB’s portfolio perspective, the engineering procurement and construction (EPC) contracts which originated from its “low-value” power business failed to generate much follow-on business. For this reasons, this was an area the company would not be focusing on going forward.
While ABB’s executives did not provide specifics on any divestiture plans involving its power operations during the February call, the CEO did refer to its decision to sell the non-core combustion engine genset business that was part of the Baldor Generators business it acquired last year for an undisclosed amount. He said this was an example of how ABB developed its product portfolio by taking out what was not appropriate to the organization’s overall business portfolio.
As for Thomas & Betts, this news service reported yesterday (2 April), citing three sources familiar, that its steel structures business, which manufactures highly engineered structures used for utility transmission, has entered a second round. Last month, it was announced that Nortek will acquire Reznor, the Thomas & Betts’ heating, ventilation and air conditioning business, for USD 260m.