Dec. 11, 2003 — Almost without notice, a number of innovative, advanced material firms in the emerging fuel cell market have been acquired by larger firms. Two recent examples of the trend are Cabot Corp’s acquisition of Superior MicroPowders for $16 million in the United States and Belgium-based Timcal’s takeover of Erachem Comilog’s carbon black business unit in Europe.
Both of the acquired businesses are poised to supply materials to fuel cell makers. Things like nanopowders, nanostructured coatings and the like will play an important role in next generation fuel cell systems. “Nanomaterials have the potential to increase power density, extend durability, and lower costs,” said Toddington Harper, a business development manager at Fuel Cell Markets, a U.K.-based consulting company.
“It’s all about getting the more productivity out of small volumes. As a result, there is a great deal of investor interest in the firms able to supply such technologies,” said David Berkowitz, a partner at Ventures West in Vancouver, a pioneering investor in fuel cell companies.
Industry observers, such as Atakan Ozbek, director of energy research at ABI, a market research firm, see the merger and acquisition activity as a jockeying by the larger players to position themselves to serve the emerging fuel cell market. The large players do not want to be left behind “once fuel cell systems become premium energy suppliers,” he said in an e-mail interview.
Ozbek expects this trend to continue in the coming years.
Berkowitz agrees, “There’s been a great deal of M&A activity to date and the trend will continue in the coming months.”
Cabot Corp. acquired Superior MicroPowders for its proprietary process to make “low precious metal content” electrocatalyst powders for proton exchange membrane (PEM) fuel cells. It is now doubling the number of R&D employees and moving to a larger facility in New Mexico.
Timcal acquired Erachem Comilog for its carbon black process in September, which is reportedly critical to lithium ion batteries and fuel cells. The unit has an annual turnover of approximately $18 million and owns an innovative special carbon black manufacturing process.
A wider trend
The silent snapup of nanomaterial manufacturers is part of a larger consolidation trend in emerging fuel cell market taking place on both sides of the fuel cell supply chain, according to Walter V. Nasdeo, an analyst at investment banking boutique Ardour Capital, in New York.
He goes as far as to say that fuel cells are a “commodity” and that the suppliers of parts and services are the ones who stand to have the “fattest margins” in the value chain in the future. This includes parts manufacturers, electrode assembly firms, power electronics, testers, materials suppliers, and on the other side of the fuel cell chain, the firms that can integrate fuel cells into systems.
PriceWaterhouseCoopers also noticed the trend in its “Fuel Cell Survey” published in October, pointing to Hydrogenics, which acquired venture-backed Greenlight Power and EnKat of Germany, to form the largest fuel cell testing equipment vendor in the world.
Indeed, the likes of GM, Shell and ChevronTexaco are starting to “hedge their bets on the sector, not just from one angle but from multiple platforms -both technically and strategically,” said Ozbek.
“Too many companies were funded during the boom. There was too much capital available and now there is too little. Startups are learning that one little piece of technology does not a company make,” says Berkowitz.
In other words, consolidation is driven by the financial distress of companies that are making one component or element of a fuel cell system. They need to find stronger, cash-rich partners in order to develop their technology into a product.
Another driver is the realization among larger firms that it is taking a lot longer to get to market than they expected and they need to buy in the pieces of the puzzle that are still missing. “There used to be an aversion to components or sub systems from outside suppliers, a not-invented-here mentality,” said Berkowitz. “But that is quite rapidly being abandoned,” he posits.
The trend will lead to “stronger companies,” according to PWC.