New energy transition exit: the Array Technologies IPO

Here is an incredible story about resilience and perseverance in the renewables industry.

A 30 year-old hardware company, previously overlooked and dismissed as selling a niche solar product, is now growing >100% year-over-year with re-accelerating topline growth. The company went from $500 million last year through the $1 billion revenue mark in 2020 — all while being profitable.

This is a new type of energy transition exit for us to review — instead of being a start-up, Array Technologies is a mature, private company playing a big role in the energy transition.

The Company

Array Technology was founded in 1989 and is based in New Mexico. The company filed for its IPO a month ago.

Array is a solar tracker company. This is the technology and mechanical system that helps orient a solar array with the sun’s arc in the sky. These systems can be mechanically-intensive and a number of firms are trying to reduce the number of motors and moving parts required per-megawatt of power capacity. Array claims to have industry-leading efficiency, and uses one motor per-megawatt of generation. Less moving parts means less likelihood for mechanical failure — and since solar sites are expected to operate for 20+ years, the hardware has to perform reliably for decades.

The No. 1 solar tracker firm is Nextracker, a subsidiary of the public company Flex. That means that Array Technologies will be the first and largest solar tracking company available to the public markets. More than 17 gigawatts of utility-scale solar has been deployed using Array Technologies’ products.

The utility-scale solar market is absolutely booming — so investing in Array Technologies is a way to gain exposure to that market opportunity.

Array Technologies financials

The company had $975 million in revenue over the past 12 months. And, atypically for a a hardware company, the firm is growing a whopping 100% with gross margins of ~25%. These margins are solid for hardware players in the renewable markets, where margins are usually razor thin.

Most impressively, the firms has 13% net income margins — with this growth! The net income levels show how there is good operating leverage in the business. This operating leverage is driven by the technology differentiation of the product leading to very large purchase orders, on relatively low sales & marketing.

Overall, the growth and margin profile combination is quite excellent.

The Deal

Array Technologies is looking to issue $675 million in shares in the IPO. The company is tentatively being valued at $2.5 billion. The original IPO goal was a $100 million issuance, so the fact that the issuance is now upsized to nearly $700 million shows how strong market interest is right now in this theme.

At $2.5 billion in value, the company will trade at ~2.5x revenue and 21x net income.This valuation has increased 3-4x over the past few months as the company’s growth profile and industry tailwinds make it a special asset.

The company is majority owned by Oaktree Capital. Oaktree purchased the company via an LBO through the OakTree Power Opportunities Group.

In summary

Array Technologies is coming to market at a great time. The company is growing ~100% year-over-year and has a nice income profile. In addition to the current financials, the company will have great tailwinds from the utility scale solar market. I expect the company will find a welcome shareholder base in the public markets.

The energy transition M&A tracker, I co-developed with Kevin Stevens is now updated with this transaction. Link found here.

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Originally published by John Tough of Energize Ventures.