Large companies that have already made small, strategic investments in renewable energy startups may soon start buying them outright, according to investment bankers.
Many startups are moving into volume production or are close to doing so, and companies that provided early backing may now see the commercial potential of these emerging technologies, said several financial analysts who spoke during a panel discussion at the Clean-Tech Investor Summit in Palm Springs, California.
The prospect of a healthier climate for public offerings may also spur deals, before small companies can tap the markets for financing, they said.
Investments in the renewable energy industry are following a well-known pattern, according to Adam Bergman, the director of clean-technology coverage at Deutsche Bank Securities Inc. in New York.
Large companies "started off initially making small investments into a lot of clean-tech companies," and many are now starting to write “bigger checks," he said during the panel discussion yesterday. ‘‘I think you’re on a path, and the third step is clearly going to be acquisitions.’’
Bergman cited two notable examples in the past year of large investments in renewable energy companies that are moving beyond the development stage, a classic sign that bigger deals may soon follow. Alstom SA, the French maker of power equipment, paid $55 million in May for a stake in the Oakland, California-based solar thermal company BrightSource Energy Inc.
And in July, General Electric Co. and the Zurich-based builder of electricity networks ABB Ltd. led a $106 million funding round in Trilliant Energy Services Inc., a Redwood City, California-based company that is developing smart meters for utilities.
ABB is making other acquisitions in energy. Its pending deal to buy Baldor Electric Co., a Fort Smith, Arkansas-based maker of motors and power transmission products, for $3.1 billion received U.S. antitrust clearance yesterday.
The poor environment for initial public offerings last year could spur acquisitions this year, according to Gary Vollen, a managing director with Milwaukee-based Robert W. Baird & Co. ‘‘We’ve gone through several years here where there have not been great exit opportunities" through share offerings, he said during the panel.
That has emboldened prospective buyers to offer low-ball prices for acquisitions, a strategy that Vollen said can stymie deals if the targets balk at the valuation.
Buyers Step Up
‘‘There is a disconnect between the selling price and the buying price that’s not going to be closed, arguably, until you have an initial public offering market again, and you can create an alternative that makes that corporate buyer step up and actually pay the price,’’ he said.
Bergman said that one area where he expects to see consolidation is in smart grid developers. Larger technology providers and industrial companies may become the ‘‘natural buyers’’ for these systems, he said, and potential acquirers are likely interested ‘‘more on the communications side than on the meter side.’’
Large providers of solar energy components are showing interest in project developers as a way to increase sales. Sharp Corp. purchased Recurrent Energy in November, and LDK Solar Co. said this month it would acquire a 70 percent stake in Solar Power Inc.
‘‘Everyone wants projects,’’ Bergman said in an interview after the panel, especially ‘‘bigger solar companies that want to put their product to use.’’
Low on Capital
Companies that are running low on capital may become targets in ‘‘distressed mergers and acquisitions,’’ Bergman said. ‘‘It won’t be out of ability of strength,’’ he said. ‘‘It will be coming from a weaker position.’’
Unlike market segments such as life sciences or information technology, renewable energy often requires capital-intensive manufacturing, which may make a buyout a better strategy than an IPO for emerging clean-technology companies, according to Michelle Cheung, an analyst with New York-based Goldman Sachs Group Inc.
Large companies may "have to step in because that is the natural place for a lot of” startups, she said. “They’re great technologies, they’ve built up to a certain point, but the natural home for these may not be the public markets ultimately.”