New Energy Transition Exit: Array Technologies IPO

Here is an incredible story about resilience and perseverance in the renewables space:

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 $500M last year through the $1BN revenue mark in 2020… all while being profitable.

And yet, that is exactly the narrative with Array Technologies.

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 market company playing a big role in the energy transition.

The Company

Array Technology was founded in 1989 and is based in New Mexico. A month ago they filed

Array is a solar tracker company. These are the technology and mechanical systems that help move a solar array in-line with the sun’s arc in the sky. These systems can be quite mechanical and a number of firms are trying to reduce the number of motors (moving parts) required per MW of power capacity. Array claims to have the industry leading efficiency, and uses 1 motor per MW of generation. Less moving parts means less likelihood for mechanical failure! And given that solar sites are expected to operate for 20+ years, the need to have the hardware match the expected duration is key.

The #1 solar tracker is Nextracker, and Nextracker is a subsidiary of the public company Flex. That means that Array Technologies will be the first and largest solar tracking company available for the public markets. Array has over 17GW of utility scale solar using their 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 has $975M of revenue over the past 12 months and as a hardware player is growing a whopping 100%. And on this revenue they have OK gross margins at ~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, though, the growth and margin profile combination is quite excellent.

The Deal

Array Technologies is looking to issue $675M of shares in the IPO. The company is tentatively being valued at $2.5 billion. The original IPO goal was a $100M issuance, so the fact that the issuance is now upsized to nearly $700M 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 currently majority owned by OakTree. OakTree purchased the company via a LBO through the OakTree Power Opportunities Group.

Similar Companies

Another up and coming name in this space is Sunfolding. Sunfolding uses a compressed air system to optimize solar tracking and maximize energy output. Their unique pneumatic approach should help Sunfolding keep O&M costs low for the energy developers.

In Summary

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 codeveloped with Kevin Stevens is now updated with this transaction. Link found here.