LBO af Vestas Wind Systems

Nichlas Jakobsen

Student thesis: Master thesis


Vestas is currently experiencing a significant corporate crisis with declining stock prices, managerial problems and poor profitability. However, the overall perspective for the wind industry in the coming decades is fairly positive with economic, demographic and political changes as the primary drivers. The current low valuation of the company combined with positive outlooks for the overall industry could indicate a potential attractive LBO case for a private equity investor. Hence, the purpose of this thesis is to estimate the potential return of a LBO of Vestas and evaluate whether or not this return would be sufficient for a private equity investor, taken the risk of the investment into account. The thesis will incorporate elements such as strategic analysis, estimation of the required return for a private equity investor, estimation of the price to delist Vestas from OMX Copenhagen, financial budgeting, determination of debt structure and a perspective of an exit price for the investment, in order to calculate the potential IRR and money back multiple for a potential LBO of Vestas. The overall conclusion is that a LBO of Vestas would generate an IRR of 28.4% and a money back multiple of 4.0x. Compared to the estimated required return, an IRR around 30% and a money back multiple in the range of 3.0-4.0x, the overall recommendation is that an LBO of Vestas would not be an attractive case for a private equity investor, since the return is not sufficient to offset the risk undertaken. In relation to this, if the American tax credit to the wind industry is not extended, the IRR of the investment would be reduced by 7.6% point and thereby make the LBO unattractive for a private equity investor. Further, the investment is highly sensitive to changes in the budgeted EBITDA margin and the expected exit price of the investment and fairly small changes in either parameter would worsen the overall investment. However, there are also potential upsides to the investment such as increasing use of offshore wind turbines, higher than expected penetration on the growing Asian markets, a higher than budgeted exit price and limited penetration for the Asian producers on the mature European and Northern American Markets. However, the overall perspective of this thesis is that the potential return of an LBO of Vestas does not offset the risk of the investment and that a private equity investor would not be satisfied with the potential return.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2012
Number of pages100