Takeover Could Shake up World Market for Low Voltage Drives

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Friday, September 19th, 2014
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The world market for variable frequency drives found in electrical motors used in HVAC systems, cranes and water infrastructure could be set for a shake-up following a move on the part of Danish engineering company Danfoss to acquire Finnish AC drive company Vacon.

Danfoss has made a €1.038 billion ($A1.49 billion) cash offer for all of the shares in Vacon, and hopes to create a formidable competitor with a leading position in the AC drives market – especially in ‘hotspot’ Nordic nation of Finland, where Vacon excels, as well as through Europe and the Asia-Pacific region.

“We have a clear strategic ambition to be one of the absolute top players in the businesses where we operate,” Danfoss CEO Niels B. Christensen said. “Vacon is a very strong and innovative player and by creating this new drives business we can ensure a strong long-term growth trajectory.”

 With 1,600 staff across 31 countries, Vacon produces AC drives which control the speed of electrical motors used in fans, pumps and compressors in HVAC systems; industrial cranes; conveyor belts; water supply systems; cooling applications and elevators and escalators, and is especially strong in its home market of Finland where Danfoss also wants to build one of its centres of excellence.

According to estimates from research outfit IHS, the two companies combined would command more than 10 per cent of the global market – just shy of that believed to be held by the leaders Siemens and ABB, and around one fifth of its home EMEA market.

While acknowledging the move will provide Danfoss with a greater market foothold, however, IHS analyst Ken Schiller remains sceptical of the new combination’s ability to mount serious competition to the top two firms in the field, ABB and Siemens.

“ABB and Siemens cultivate much of their drives business alongside their sizeable share of the integral AC motor market, and are able to offer complete system solutions across all power ranges,” Schiller said.

“Conversely, Danfoss has a comparatively undersized standalone motor market share. However, with significant market share in drives integrated with motors and end equipment, the new Danfoss and Vacon integration will most likely affect the competitive landscape in lower power ranges – below 50 kilowatts.”

The offer, which was unanimously recommended by Vacon’s board but remains subject to necessary approvals, comes after Vacon was forced to abandon forecasts for full-year sales growth of between five and 15 per cent and core operating margins of 11 to 13 per cent (compared with 10 per cent in 2013), saying expectations regarding incoming orders had weakened and indicating only that sales and margins would increase compared with last year.

In July, the company said it was suffering from subdued demand in markets such as building automation and renewable energy generation.

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