General Electric said Tuesday it agreed to acquire LM Wind Power, a supplier of rotor blades to the wind industry, for $1.65 billion in a move to vertically integrate its renewable energy business.
LM Wind, a Denmark-based company that is currently owned by private-equity firm Doughty Hanson, is GE’s largest wind blade supplier. With the deal, GE will bring the design and manufacturing of blades for its wind turbines in-house.
“We’ll be more local, have more flexibility and knowledge in turbine design and supply, and more ability to innovate and reduce product costs, while improving turbine performance,” Jérôme Pécresse, CEO of GE Renewable Energy, said in a news release.
GE separated its renewable energy business from its power unit last year after the $13.6 billion acquisition of Alstom SA’s power business. Renewable energy generated $6.27 billion in revenue for GE in 2015, accounting for about 6% of its total industrial segment revenue.
GE shares rose 0.2% to $28.92 in trading Tuesday amid analyst support for the deal. “This vertical integration helps ‘de-risk’ the supply chain for GE and reduce costs in the wind turbine manufacturing process,” RBC Capital commented.
Steven Winoker of Bernstein said the acquisition was consistent with GE’s “strategy of insourcing/vertical integration, and in line with their size objectives … LM has a strong growth profile, margin performance, and technical expertise.”
He added, however, that “One potential risk we see to this deal is how LM’s other customers could view this acquisition — it would not surprise us to see Siemens back away from its LM relationship, for example, creating headwinds.”
Since 1978, LM Wind has produced more than 185,000 blades, corresponding to approximately 77 gigawatts of installed wind power capacity. It had revenue of 750 million euros ($840 million) in 2015 and operates 13 factories in eight countries including Denmark, Canada, the U.S., India, China and Brazil.
“This deal will merge the speed and focus of LM Wind Power’s entrepreneurial culture with GE’s world-class engineering and operational capabilities,” LM’s chief executive, Marc de Jong, said.