Solar M&A Watch: Shopping for Revenues (WFR, FSLR, TSL, SPWRA, TAN)

There may be more M&A headed to the solar sector.  Solar wafer maker MEMC Electronic Materials, Inc. (NYSE:WFR) has announced its second deal in as many days as it seeks to bulk up for a possible shakeout in the solar PV sector. Yesterday MEMC announced that it was buying privately held Solaicx for up to $76 million plus earnouts that could bring the total cost up another $27.6 million. Today, MEMC’s solar development group SunEdison announced a joint venture with private equity firm First Reserve Corp. that could lead to the acquisition of up to $1.5 billion in current and future projects at SunEdison.

First Solar, Inc. (NASDAQ:FSLR) last month bought privately held NextLight Renewable Power for $285 million, giving First Solar the strongest contracted pipeline in the solar industry. Trina Solar Ltd. (NYSE:TSL), which reported first quarter earnings today, has a ton of cash available to get into the acquisition fray, and SunPower Corp. (NASDAQ:SPWRA) has a similar sized war-chest should it decide to expand through acquisition.  This could also mean that some of the smaller components in the Claymore/MAC Global Solar Energy (NYSE: TAN) end up finding themselves M&A targets by predators while they are down and out.

Except for the Solaicx acquisition, the other deals have all been aimed at moving the solar PV makers further downstream in market. In the press release describing the joint venture between SunEdison and First Reserve, SunEdison commented on the financing power of First Reserve, while First Reserve pointed to SunEdison’s ability to develop, build, and operate solar PV plants.

SunEdison will identify and lead the development on new projects which First Reserve will then finance. Once the project is running, the joint venture will purchase the project and SunEdison will operate and manage it.

MEMC, with about $500 million in cash at the end of March, clearly wants to beef up the market for its technology so that it can leverage the newly acquired low-cost wafer making technology it just purchased with Solaicx. The financing deal with First Reserve leaves MEMC with enough cash to spend on expansion to meet the demands that the company sees in its future. Not a bad plan, actually.

First Solar took a more direct approach to expanding downstream by buying NextLight’s project pipeline of 575 megawatts. That acquisition ran down First Solar’s cash to $421 million, still a substantial amount in the solar sector.

First Solar has seen its gross margins falling from its historical average of around 56% to less than 50%. Lowering its manufacturing costs to get back to those historical margins did not seem a winning strategy, so the company decided to go after share. Also not a bad plan.

Trina has built its cash. The company reported $690.5 million in cash at the end of the first quarter, up from $478 million at the end of December. Most of the gain came from a secondary offering in March that raised $184 million, which the company says it is using to “expand manufacturing facilities for the production of PV cells and modules, for research and development purposes, including the expansion of its research and development center, and for downstream projects and general corporate purposes.” Notice that the company did not mention an acquisition.

SunPower has a nice chunk of cash available to it as well, some $499 million at the end of its first quarter. That amount does not include $277 million SunPower spent to purchase privately held SunRay Renewable Energy. The deal gave SunPower a downstream pipeline that added 1,200 megawatts of solar projects in Europe to the company’s books. With one nice acquisition under its belt already, and plenty of cash left, SunPower could still be shopping.

With the possible exception of SunPower, debt financing is also not out of the question. Long-term debt at First Solar is $136 million, at Trina it’s $296.1 million, and $401 million at MEMC. SunPower lists its ‘bank loans’ at $439 million and its convertible debt at $691 million.

Any of these solar makers is still in a position to make a further acquisition this year without resorting to adding debt or issuing more stock. Small privately held solar technology makers could be bargains now, especially those involved in the downstream part of the business. And though some of the larger project pipelines have already been picked up, there are others that could be added for longer-term strategic positioning.

Paul Ausick