Melrose to Acquire Elster, Smart Meter Giant, for $2.3B

Melrose to Acquire Elster, Smart Meter Giant, for $2.3B

British firm Melrose to acquire the German metering giant for the rumored $20.50 per share.

German smart metering giant Elster Group SE on Friday announced that it has agreed to an acquisition by British buyout firm Melrose PLC, for $20.50 per American Depository Share, or about $2.3 billion.

The deal, first reported two weeks ago, will allow Melrose to buy shares of the German metering giant from Rembrandt Holdings, an entity owned by funds managed by private equity firm CVC Capital Partners. Elster listed its shares on the New York Stock Exchange in 2010, but CVC remained a majority shareholder, and Friday’s deal would see the company go private again.

The price of the Elster acquisition represents a 49-percent premium on Elster’s closing price on June 11, the day before speculation emerged that it was for sale. Last year, Swiss-based smart metering giant Landis+Gyr, a bigger company, was sold to Toshiba for $2.3 billion by the private equity firm Bayard Capital, which bought the company in 2004. Analysts at Robert W. Baird & Co. noted in a Friday statement that Elster’s $2.3 billion price represented at 10X multiple of EBITDA (earnings before interest, taxes, depreciation and amortization), slightly lower than Toshiba’s offer for Landis+Gyr of 11.5X trailing EBITDA. Nevertheless, the report predicted that the deal would go through, absent a competing bid.

The move will no doubt fuel speculation about more acquisitions in the smart grid and smart metering space. In November, Reuters reported that Raleigh, N.C.-based smart meter maker Sensus was exploring a sale to a strategic partner or private equity firm and seeking about $800 million to $1 billion. We’ve also seen analysts discuss North American smart metering giant Itron and Echelon, a U.S. company with a big smart meter presence in Europe, as potential targets. Whether or not potential buyers like ABB and Siemens would want to buy a smart meter company is far less clear, however.

General Electric is the remaining smart meter vendor in the “Big Five” list of companies, which collectively dominate smart meter deployments in North America and western Europe. Other regions have their own players — China, in particular, has a host of incumbents, though U.S. and European firms are busy partnering up with them. The same holds true in Brazil, South and Central America, and much of Asia.

All of these meter makers are working with networking startups like Silver Spring Networks, Trilliant, SmartSynch and Tropos Networks, which offer enhancements on the wireless networking provided by the smart meter makers themselves. Meter data management software is another area where smart meter vendor systems share the field with standalone solutions from the likes of eMeter, Ecologic Analytics, Oracle and others.

Notably, this list includes a lot of companies that have been acquired in the past year or so. Tropos was bought by ABB this month for an undisclosed sum, giving the Swiss grid giant a host of U.S. smart meter-smart grid projects. SmartSynch, which uses cellular networks to hook up smart meters, was bought by Itron for $100 million in March. On the MDMS front, both eMeter and Ecologic Analytics were acquired late last year, by Siemens and Landis+Gyr/Toshiba, respectively.

As for Elster, it has fallen behind its competitors in U.S. smart meter deployments, though it has also been growing its business in Europe, South America and Asia. It reported net income of $100.88 million on revenues of $1.87 billion last year, up from $87.26 million on revenues of $1.76 billion in 2010 and $48.9 million on revenues of $1.69 billion in 2009.

Like its smart meter competitors, Elster is branching out into broader smart grid applications. GTM Research smart grid analyst Ben Kellison notes that Elster has a distribution networking partnership with Eaton, which announced plans to acquire Cooper Industries for $11.8 billion last month, putting it in the ranks of ABB, Siemens, Schneider Electric and GE in terms of smart grid market heft.


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