General Electric Company (NYSE: GE) recently announced that it is considering to acquire LM Wind Power for around $1.65 billion. Because of this, RBC Capital reaffirmed a rating of Outperform for the GE stock and maintained a $36 price target.
This potential acquisition led to a slight increase in the momentum of General Electric’s stock.
LM Wind Power is considered the biggest supplier of rotor blades in the world. After the announcement of the acquisition deal, the RBC stated, “This deal effectively in-sources another component of the design and manufacturing of GE’s wind turbines within the Renewable Energy segment.”
The firm believes that this move can minimize the risks in supply chain due to vertical integration. According to RBC Capital, the deal would lead to lower costs in the manufacturing process of wind turbines. Aside from that, General Electric would also manage to boost the efficiency of its energy production using wind turbines, which would eventually drive down the cost of wind power.
Meanwhile, the Head of GE Renewable Energy Jérôme Pécresse noted that LM Wind Power would benefit from access to the supply chain and technology of General Electric.
“Increasingly, wind turbine innovation is driven by system design, materials science, and analytics,” the GE Renewable Energy Head further stated.
RBC Capital pointed out that a transaction multiple of 8.3x pro forma EBITDA for fiscal year 2016 appears feasible. The reason behind this is that the multiple is consistent with the past vertical integration deal of the company with Avio Aero worth $257.2 billion during the fiscal year 2013. By striking these deals, General Electric is attempting to grab a larger market share in the renewable energy industry, which is growing exponentially.
Furthermore, the firm also forecast that this latest acquisition deal would be accretive to the company’s earnings that would be realized by the fiscal year 2018.
General Electric aims to complete the deal by the first half of the following fiscal year.
RBC Capital believes that Denmark’s LM Wind Power will be able to maintain its international manufacturing footprint and that the new business will be a stand-alone unit within the Renewable Energy division.
Moreover, the firm also expects that the world’s biggest rotor blades manufacturer would continue to serve as a supplier to other OEMs within the renewable energy industry, apart from GE.