Transnational Corporations Fighting for Stake in the Smart Grid

24/7 Wall St.
June 2, 2011

Today’s alternative energy news keys off of another acquisition in the increasingly competitive smart grid area. What is more important is that the dollars at stake here are literally billions and billions.

France’s Schneider Electric SA (OTC: SBGSY) has offered to acquire Spain-based Telvent GIT, S.A. (NASDAQ: TLVT) for $2 billion.

Schneider, along with ABB Ltd. (NYSE: ABB), France’s Alstom SA (OTC: ALSMY), General Electric Co. (NYSE: GE), and Siemens AG (NYSE: SI) are major players in the nascent buildout of the smart grid.

The Electric Power Research Institute (EPRI) has estimated could cost nearly half a trillion dollars in the US alone. That’s enough money to be worth fighting over.

And that’s what these players have been doing, using their stacks of cash to acquire strategic components of the smart grid. Telvent, for example, offers real-time monitoring services for utilities to help balance electricity load. Doesn’t sound like a big deal, but the amount of electricity flowing to the grid is now calculated, not measured. Monitoring equipment like that from Telvent will give a utility a more accurate picture of load, and enable more efficient generation. Better monitoring will also help avoid costly blackouts and brownouts.

The First Trust NASDAQ Clean Edge Smart Grid Infrastructure (NASDAQ: GRID) ETF is too thinly traded to even matter for most investors. What does matter here in this ETF is that any or almost all of the fund’s small and mid-sized weighting components could find themselves under fire from an acquirer if they can be quickly integrated and then scaled for broader distribution.

ABB paid $3.1 billion in Janurary to acquire precision motor maker Baldor Electric and GE spent $3.2 billion to get 90% of French automation equipment firm Converteam. Siemens is looking to spend up to $4.3 billion on “bolt-on” acquisitions this year. Siemens has not yet participated in the buying spree, but it will likely have to do a deal or two if it wants to stay in the smart grid game.

These companies understand the stakes in the smart grid game and they also understand the utilities. Big utilities are wary of buying technology from start-ups and other small companies, but are willing to buy the same thing from ABB, GE, Schneider, or Siemens because these companies have a history and a track record. The risk that a company like GE will fold is very small, which means that it will be around to maintain and upgrade any systems it installs.

When it comes to M&A in the smart grid, the questions should probably point to “when” rather than “if” more deals are coming.