FRANKFURT Private equity investors can still find gems in the battered solar industry and are expected to buy in soon, above all in the area of equipment manufacturing where margins seem robust, a senior M&A lawyer said.
"It's very likely that we will see M&A activity in this segment within the next two years," Marcus Herrmann, partner at law firm Latham & Watkins LLP, said on Tuesday at the Reuters Global Climate and Alternative Energy Summit.
Herrmann, who has specialised in advising on transactions in the renewable energy sector, added that private equity investors prefer German equipment makers over cell and module makers due to their technology and high sales exposure abroad.
Equipment makers such as Roth & RauR8RG.DE, Manz Automation(M5ZG.DE) and CentrothermCTNG.DE supply production machines to makers of cells and modules and have most of their customers in foreign countries.
This puts them ahead of their cell and module making peers that still struggle with thin margins in Germany, the world's largest solar market, where the government lowered sector subsidies substantially in July.
"In this (cells and modules) segment we will only see transactions of companies that find themselves in difficulties," said Herrmann, 46, who is based in Frankfurt.
The solar sector came under intense pressure in late 2008 when prices for cells and modules fell sharply, but large M&A activity has so far been sparse as companies avoid buying into indebted and suffering solar groups.
Large utilities and industrial conglomerates have been very selective in making acquisitions in the field of renewable energies, focusing on plant-sized projects in the wind and solar thermal industries rather than the more decentralised photovoltaic industry.
One example is Siemens'(SIEGn.DE) $418 million takeover of Israel's Solel Solar System Ltd, which specialises in solar thermal power.
Latham & Watkins advised some of the industry's most prominent deals such as Bosch's 1.08 billion euro ($1.50 billion) takeover of Ersol in 2008 as well as the sale of Sovello, a joint venture of Q-Cells, Renewable Energy Corp and Evergreen Solar, to Ventizz Capital.
(Editing by Michael Shields)