The deal would be a cash offer for $20.50 per share, or about $2.3 billion. There are some reports that Elster is holding out for $22 per share and that there may be competition. Elster closed at $16.40 per share on Friday.
Melrose is currently conducting due diligence and Elster’s board, or the company’s largest shareholder, Rembrandt Holdings, would have to approve the deal.
Elster is not the only “Big Five” smart meter company to be named as a rumored acquisition candidate in the past six months. In November, Reuters reported that Raleigh, N.C.-based smart meter maker Sensus was exploring a sale to a strategic partner or private equity firm and seeking about $800 million to $1 billion.
Last year, an even bigger smart meter contender, Swiss-based Landis+Gyr, was sold to Toshiba for $2.3 billion by the private equity firm Bayard Capital, which bought the company in 2004.
Last week, analysts were quick to jump on the possibility of more acquisitions in the smart meter space, laying out Itron and Echelon as potential targets. Whether or not potential buyers like ABB and Siemens would want to buy a smart meter company is far less clear, however.
General Electric is the remaining smart meter vendor in the “Big Five” list of companies, which collectively dominate smart meter deployments in North America and Western Europe. Other regions have their own players -- China, in particular, has a host of incumbents, though U.S. and European firms are busy partnering up with them. The same holds true in Brazil, South and Central America and much of Asia.
All of these meter makers are working with networking startups like Silver Spring Networks, Trilliant, SmartSynch and Tropos Networks, which offer enhancements on the wireless networking provided by the smart meter makers themselves. Meter data management software is another area where smart meter vendor systems share the field with standalone solutions from the likes of eMeter, Ecologic Analytics, Oracle and others.
Notably, this list includes a lot of companies that have been acquired in the past year or so. Tropos was bought by ABB this month for an undisclosed sum, giving the Swiss grid giant a host of U.S. smart meter-smart grid projects. SmartSynch, which uses cellular networks to hook up smart meters, was bought by Itron for $100 million in March. On the MDMS front, both eMeter and Ecologic Analytics were acquired late last year, by Siemens and Landis+Gyr/Toshiba, respectively.
As for Elster, it has fallen behind its competitors in U.S. smart meter deployments, though it has also been growing its business in Europe, South America and Asia. It reported net income of $100.88 million on revenues of $1.87 billion last year, up from $87.26 million on revenues of $1.76 billion in 2010 and $48.9 million on revenues of $1.69 billion in 2009.
Like its smart meter competitors, Elster is branching out into broader smart grid applications. GTM Research smart grid analyst Ben Kellison notes that Elster has a distribution networking partnership with Eaton, which announced plans to acquire Cooper Industries for $11.8 billion last month, putting it in the ranks of ABB, Siemens, Schneider Electric and GE in terms of smart grid market heft.