Stakeholder Analysis of the Recent Acquisition Moves in the World UPS Market
Anu Cherian, Industry Analyst, Energy & Power Systems Frost & Sullivan
The world uninterruptible power supply (UPS) market is a highly mature market that has witnessed significant market consolidation in the past two decades. Companies such as Emerson acquired Liebert Corp. to strengthen its position as a global UPS manufacturer. Eaton acquired Powerware brand of Invensys to create a strong brand of Eaton Powerware UPS. Most recently, APC was acquired by Schneider Electric to become a global force in the UPS market. The composition of the tier one category of this market has become stronger each year, and the intensity of competition has decreased prices, as well as commoditized products at the lower power ranges.
The key end-user segments of the market are datacenter, industrial and healthcare, as well as niche markets such as military and government. The market for datacenters has witnessed a significant increase in the past decade as a result of the convergence of telecom and data communications and global business integration. Datacenters have been the key driver for growth of the backup power market, especially in North America, Europe and Asia Pacific.
This article provides a brief insight into the latest moves by Emerson Network Power to acquire Chloride Group PLC, a focused UPS manufacturer with a strong presence in Europe.
Emerson’s Bid for Chloride: A Move Toward Greater Market Consolidation
Emerson Electric Co., which has been trying to acquire the UK-based Chloride Group PLC since 2008, has finally succeeded in obtaining Chloride’s approval for its latest 375 pence per share offer, valuing Chloride at approximately $1.5 billion. Two of Emerson’s previous offers were declined before this approval; one at 270 pence per share in 2008, which then valued Chloride at approximately $1.29 billion, and the other earlier this year at 275 pence per share, which valued Chloride at approximately $1.11 billion. The 275 pence per share offer by Emerson was also followed by a 325 pence per share offer by the power and automation giant, ABB, which valued Chloride at approximately $1.25 billion that has now been outbid by Emerson’s latest offer.
Emerson has already acquired 49,998,079 shares of Chloride through open market purchases, which is almost 19 percent of Chloride’s total issued share capital, and the acquisition of complete stake is expected soon.
Emerson manufactures UPS systems under its Network Power Business Segment that offers a wide range of power protection and precision cooling solutions. Emerson also has businesses in the process management, climate technologies, tools and appliances and industrial automation areas.
ABB is the largest builder of electricity grids. It is a supplier of components for transmission and distribution of electricity, and it also provides solutions for industrial automation.
ABB’s Interests
ABB serves sectors such as power, oil and gas, pharmaceuticals, chemicals, pulp and paper; all huge markets for UPS systems. This acquisition could have helped ABB to bundle Chloride’s UPS systems with its existing products. In addition, it helps them gain access to Chloride’s existing markets for selling its own products. ABB could have leveraged its financial strength to grow the UPS business further and position itself as a total solution provider.
Benefits for Emerson
A complete stake in Chloride holds great potential for Emerson. Presently, Emerson and Chloride have the third- and fourth-largest market shares in the global UPS markets, in which APC - Schneider Electric and Eaton Corp. hold the first and second position, respectively. With the acquisition of Chloride, Emerson can surpass Eaton, to take the second position in this market.
Although Emerson manufactures UPS systems across all power ranges, its major strength lies in the high power and three-phase UPS segments, in which it holds large market shares. Chloride also holds a significant share in these segments.
Currently, Emerson has the largest market share in the above 200 kVA UPS systems and the second-largest market shares in the 20 kVA to 50 kVA and 50 kVA to 200 kVA segments. With this acquisition, Emerson can lead the entire high-power segment of the UPS markets. These power ranges together contribute to almost 40 percent of the overall UPS market revenues and are expected to grow at a faster rate compared to the lower power ranges.
Market Segment Benefits
Chloride’s strong line-up of industrial UPS systems will strengthen Emerson’s business in the industrial UPS markets. Industrial UPS markets are strong in the Middle East and North America among the regions worldwide. Industrial UPS markets are mainly driven by end-user segments such as oil & gas and power. In addition, industrial UPSs are different from commercial UPSs as they are rugged systems that are designed to handle shock, vibration and temperature variations, as well as moisture. Chloride’s power conditioners have leveraged the quality of their product.
Geographic Benefits
Two of the geographical regions where Emerson is likely to benefit significantly are the following: Europe: Chloride’s strong position in the European UPS markets make this acquisition an opportunity for Emerson to strengthen its foothold in the European markets where its current position is relatively weak. Chloride is headquartered in Europe and its product line is geared to appease the European market as well as its industry.
Asia Pacific: Chloride’s acquisition of Ascor Power Systems in Singapore, its 90 percent stake in DB Electronics in India and its joint venture manufacturing facility in Shenzhen, China, have helped it gain a strong hold in the Asia Pacific UPS markets. This acquisition will help Emerson strengthen its operations in this region. This is a region of significant interest for all companies globally.
Future Outlook
This acquisition carries the potential of creating a new UPS giant with an extremely strong brand and market position globally. It emphasizes the increasing consolidation in the highly fragmented UPS markets. Despite market maturity, individual regional players continue to grow in this market. This is an indication that tier one companies continue to place stock on regional manufacturers that show consistent growth, product innovation and target markets that are lucrative and strategic in their regions.
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