46 n MOTORS November/December 2023 www.drivesncontrols.com Will WEG’s Regal Rexnord purchase be a game-changer? In late September, the world’s secondlargest low-voltage AC motor manufacturer, WEG, announced it would be buying Regal Rexnord’s industrial electric motors and generators business for $400m. The acquisition includes most of Regal Rexnord’s industrial systems division, which comprises the Marathon, Cemp and Rotor brands. While Regal Rexnord will continue to operate its commercial motors business, the move represents a significant move away from the LV motors market. Conversely, WEG, a company that has expanded its share of the LV motors market rapidly in recent years, will add hundreds of millions in revenues to its motors business through one of the most significant acquisitions the market has seen in a decade. Under the agreement, WEG will gain around 2,800 employees in ten factories in seven countries – Canada, China, India, Italy, Mexico, the Netherlands and the US. In 2022, the estimated net operating revenue of these businesses was $541m, with an adjusted EBITDA margin of 9.5%. The transaction is expected to close in the first half of 2024. “The geographical distribution of these operations complements WEG’s current presence and will help achieve greater scale and cost efficiency as we integrate the new operations with the existing ones,” says WEG’s president, Harry Schmelzer Jr. “With a long history in the market and a global presence, this acquisition will support the ongoing growth of the WEG group in the industrial electric motors and generators markets through the incorporation of recognised brands and a product line that complements the group’s current portfolio.” Since Regal Beloit merged with Rexnord in 2021, Regal Rexnord has struggled to maintain its competitiveness in the LV motors market, losing share every year since. It quickly became clear to Regal’s competitors that the company was not interested in expanding its industrial motors business and was instead focused on building capabilities more aligned with segments such as HVAC/R and materialhandling. This led to it losing market share to its rivals and to the business underperforming within Regal Rexnord. This is demonstrated by the sale price of just $400mn – a fire sale by any account. This is WEG’s second major acquisition for a price under the annual revenue of the acquired business. In 2022, WEG acquired Gefran’s motion control business for half of its annual revenue. Boosting market share Over the past few years, WEG has seen significant growth in its share of the LV AC market. According to Interact Analysis’ most recent LV AC motor market report, WEG has expanded its share of the market by 2.5% since 2020 – a significant jump for such a large business. This rapid rise can be attributed to the company’s performance despite postpandemic supply chain constraints. While all motor vendors faced supply chain issues, WEG’s significant vertical integration allowed it to operate with shorter lead-times, and to capture market share from those who could not satisfy customers’lead-time demands. This jump in market share has narrowed the gap between WEG and the current market-leader, ABB. With its new acquisition, WEG could become number one in the market within a few years. Apart from the immediate addition to its revenues, the acquisition also provides significant long-term opportunities. According to a statement made to Valor International by Alberto Kuba, managing director of WEG’s motor business, the manufacturing plants acquired as part of the deal could operate at much higher capacities. They have been running at 50% of their capacity, with only one shift. By contrast, WEG runs continuously at almost all of its existing plants. Kuba says production volumes could theoretically be doubled within the existing structure. There are concerns surrounding the possible challenges of integrating the acquired entity into WEG’s business. Regal Rexnord and WEG have historically been each other’s most significant competition, overlapping heavily in many of their target markets. As a result of this rivalry, harmoniously merging two direct competitors will be more of a lengthy process than other acquisitions WEG has made. However, regardless of the length of time taken to integrate the Regal Rexnord business with WEG, this acquisition can only expand WEG’s presence in the motors market. n WEG’s recent purchase of Regal Rexnord’s LV motors business was one of the biggest for many years. Vanessa Lopez, a research analyst with Interact Analysis specialising in the industrial automation sector, considers the deal’s implications and whether WEG could overtake ABB to become the world’s largest supplier. The Regal Rexnord bands that WEG has acquired could help it to overtake ABB as the world’s biggest producer of low-voltage AC motors
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