American Superconductor Announces Acquisition of Power Quality Systems

March 08, 2007 by Jeff Shepard

American Superconductor Corp. announced that it has signed a definitive merger agreement to acquire Power Quality Systems, Inc. in an all-stock transaction valued at approximately $3.8 million, or approximately 1.3 times PQS’ sales for calendar year 2006.

Based in Pennsylvania, PQS offers reactive compensation products known as Static VAR Compensators, or "SVCs," based on its proprietary thyristor switch technology. These products enhance the reliability of power transmission and distribution grids and greatly improve the quality of power for manufacturing operations. The acquisition is expected to close in April 2007.

Thyristor switches are the heart of many power electronic-based reactive compensation products, including SVC systems. These systems are used to regulate and stabilize power grid voltage, which increases grid reliability and allows more power to be transmitted over existing power transmission lines. Utilizing PQS’s proprietary thyristor switch, AMSC expects to offer SVC systems that not only have a lower initial cost, but also lower energy and maintenance costs and a smaller footprint when compared with conventional products.

"The proprietary technology PQS has developed and marketed over the past 10 years will significantly enhance AMSC’s reactive compensation product offerings," said Greg Yurek, founder and Chief Executive Officer of AMSC. "PQS sales to date have been mostly limited to municipal and co-operative electric utilities and smaller industrial operations. AMSC expects to utilize its worldwide sales force and business relationships with large electric utilities to accelerate the growth in sales of PQS’s product line. In addition, by combining PQS product offerings with AMSC’s control system technology and transmission grid engineering expertise, we expect to be able to more effectively address larger-scale SVC order opportunities from utilities. The addressable market for large-scale SVC solutions in the U.S. alone is approximately $100 million annually, and it is increasing rapidly as electric utilities focus on strengthening the nation’s transmission infrastructure."

AMSC’s current reactive compensation offerings for electric utilities include Dynamic-Volt-Ampere-Reactive systems, or D-VAR® systems, and a dynamically controlled SVC solution, also known as a Dynamic VAR Compensator, or DVC™ system. Power Quality Systems has an installed base of more than 60 SVC systems with ratings of up to 28 megaVAR (MVAR) in North American utility grids and industrial sites.

AMSC has agreed to purchase PQS for approximately $3.8 million worth of stock. The shares are subject to a lockup agreement whereby the current owners of PQS may sell only a certain number of shares per year through March 2009. While the current owners are financial participants only and will not be employed by AMSC subsequent to the acquisition, all key PQS engineering personnel are expected to remain with the company. The all-stock transaction also includes an earn-out opportunity with the potential for up to an additional 475,000 shares of AMSC common stock to be issued to PQS’s current owners based on the achievement of certain order growth targets for existing PQS products for the fiscal years ending March 2008 and 2009.