Blue Star Power Systems, Inc. (DEZ) Earnings Call Transcript & Summary

Good morning to all of you. Welcome to our call on the acquisition of Blue Star Power Systems. We are all delighted that you have accepted our invitation at such short notice. During this call, our CEO, Sebastian Schulte, will give you an overview of Blue Star Power Systems and explain the rationale behind this acquisition, and how it contributes to our Dual+ strategy. Afterwards, Sebastian and our CFO, Timo Krutoff, will be happy to answer any questions you may have. And we are aware of your interest in our defense strategy, news have spread and Sebastian Schulte will, therefore, give you first insight in what we plan that our main topic today is energy. Thank you for your understanding. And finally, please note that management comments during this call will include forward-looking statements, which involve risks and uncertainties. For the discussion of risk factors, I encourage you to review the disclaimer contained in our presentation. I would now like to hand over to Sebastian Schulte. Sebastian, please.

Thank you very much, Mark, and good morning, everyone, for this call on our very recent acquisition of Blue Star, as indicated by Mark. We are very happy to guide you through, and I'll ask the team to go present here, go to the first page of the presentation, please. Yes, as we said and as we announced in our talk disclosure last afternoon as well as the press release last afternoon, we are pleased to announce the signing of a share purchase agreement of DEUTZ, to be more precise DEUTZ Corporation, our U.S. Americans life subsidiary to acquire 100% of the shares Blue Star Power Systems. What is Blue Star? Blue Star is a North American manufacturer of gensets. So devices, little plants, including an engine, but in the end, producing electricity, producing electrical energy. The company so far has been privately owned and run. It's based in North Mankato, Minnesota, it's about 90 minutes drive from Mineapolis, which is a bit of a cluster for a lot of successful power generation companies in the U.S. And the company has been founded in 2004 and has shown since then a very, very good development both in terms of top line and bottom line, we will talk about that later. So what's the focus of our call today. First of all, we want to tell you our perspective on the market for decentralized energy supply. So in other words, why is this an interesting and attractive market for us and for other players as well. We want to give a bit more introduction of Blue Star Power Systems, the target of our acquisition. And of course, [indiscernible] it's certainly the most important. We want to explain the strategic rationale why DEUTZ is pursuing this acquisition and also what are the implications in the short, mid and long term for DEUTZ. Let me start with the perspective on the market. And we now start here really with a global perspective. And I think what would surprise anyone that the global energy supply over the next decade is strongly expected to increase. In fact, it's more than -- it's expected to more than double from 2030 to 2050. And it's also not a surprise that the share of renewable energies is expected to grow with an even faster pace, whereas the share of conventional energies is obviously due to climate change activities and is obviously expected to decline over that time. The issue is that in many, many countries, the grids are not expanding at the same pace like the global energy supply. And in particular, there is a mismatch between the demand and the grid capacity. And this mismatch is not only relevant for developing countries, which you would expect, but increasingly also relevant for highly developed countries, particularly as the United States of America. And as a solution and also has an opportunity for us. There is a demand for more decentralized energy supply at micro grids and micro grids, gensets play a major role to help really making renewable energy suitable for widespread use, because one of the challenges of renewable energies, think about photovoltaic, for example, is that there is not necessarily a steady supply of the energy source like the sun or the wind, and then in order to make a microgrid functioning in the -- functioning sustainably at dark or when there is no wind, there's always a necessity for a backup power system, and that's typically been provided by power genset, and I'll talk about the role of different technologies later within this presentation. If we move on, one further, looking at the market for gensets in North America. So now actually moving from the global energy market to the local market for gensets in North America. And that's currently 2023, 2024, it's roughly a $10 billion market, having grown 7% per annum since 2019 and is expected to grow further in the next 5 years. And beyond that, the growth is expected to continue at that pace or even higher. The strongest part of -- the strongest subset of that market is derived, and is coming from data centers. If you look at one particular category, but also the already mentioned microgrids and rental equipments play currently a major role and will continue to play a major role. And then there is this widespread category, others, which include single-family homes, gas supply, agriculture and also production. So there are several drivers for growth in this attractive market in North America, and we expect this to continue. The drivers for this growth are manifold. So first of all, we have, unfortunately, we're suffering increasingly from extreme weather events, whether it's on the storms or other extreme weather events. And these weather events lead to longer power outages, and form then a requirement for independent energy solutions, even for areas which are in principle, not directly affected by those weather events. So that's what we call the noncritical areas, but that's one of the drivers. And then as a consequence, the other already mentioned driver is the insufficient infrastructure. We have, in many countries, as said, but even particularly in the United States, updated power grids and then the increasing demand leading to capacity overload. And on top of that, cybercrime and hybrid warfare may also be threatening the stability of supplies. Then let's talk about renewable energies in the moment. There is an increasing demand for renewable energies. That's also obviously driven by the requirements of society, and this demand leads in the end to the volatility in the power grid, higher demand for hybrid solutions and decentralized energy systems where, again, the microgrids, as a connection of different technologies come into play. Relocation of production to the U.S.A. That's a U.S.-specific topic, is a trend which is happening, certainly since the Trump, the first Trump administration, but it's continuing also in the current administration in the U.S. And that's why we expect this to continue in the U.S. regardless which party and which candidate will win the election later this year. So this relocation is in the end, a result of several government subsidies, particularly in the high-tech sector, if we mentioned battery production, semiconductors. And for those sectors, the requirement, the necessity for backup gensets for business-critical tasks is another growth driver for decentralized electricity supply. And connected to that investments, including public investments in digital infrastructure think about data centers. Again, they need to higher demand for backup solutions, including also the various laws in the U.S., pushing really the investments in airports, water infrastructure and transit. Let's move to Blue Star, in particular, and Blue Star in particular is one of the top 10 genset producers in the North American market. What are they producing? Producing and obviously selling diesel and gas-powered gensets capacity from 20 to 2,000 kilowatts. Currently, the company is employing a bit more than 100 employees, and we expect the revenue in '24 of above USD 100 million. Revenue distribution last year, you see that here on that chart, predominantly in the United States, 85% but also serving the Canadian market with 15%. And the distribution is happening mainly via distributors, almost 90% and then the remaining 10% are being sold via direct customers. So there's growth potential also in direct sales in principle. But so far, the company has enjoyed their fantastic growth path with a very, very well functioning and performing distribution network. We look at what are the product categories Blue Star is serving. Well, a major part comes from gensets using diesel engines, 70%, gensets using gas engines, 19%. And also components, including transfer switches and a little part of transportation. So it's mainly enjoying the growth of the business perspectives from gensets, diesel and gas. If you look at the products. The 70% I just mentioned, diesel gensets between 20 and 22kWe and 2 megawatts. And it's a bit of, let's say, Blue Star is a player who works very, very close to customers' requirements. So no one size fits all approach, and that's what the customer love. And they use engines from several players, Perkins, Volvo Penta, John Deere and Mitsubishi to mention some names. And these engines or these gensets follow IPA standards for housing fuel tanks and other accessories available. If you look at gas engines from 20 kilowatts to 1.2 megawatts here, ranging applications from basic power supply also to the emergency power supply. The main focus is really statement for both categories, diesel and gas is the emergency power supply. And here, gas engines from GM and Power Solutions International are used, again, IPA standards being full suite. Transfer switches, a bit of a niche product, but with additional potential to grow Schneider Electric, ASCO Power Technologies using here, entering here for versatile applications, including health care and data centers. And also going forward for digitization of the business model, including the possibility of monitoring and controlling the generator output and then a minor part of the revenue share components. One statement in general, I think, is important. If you stop please on the previous page for a second. One statement is important. You see that the engines being used currently do not include DEUTZ engines. So that's a potential for the future. It's a potential to develop potentially new product lines, including DEUTZ engines, but we do not go into that business to substitute the existing engines from Volvo, Perkins and so on with DEUTZ engines to -- in order to increase the DEUTZ engine output. This is for us a potential, but we want to continue with Blue Star to provide products according to the customers' requirements. And obviously, that may include DEUTZ engines, may also continue with the existing well-functioning and well-accepted products. Now we can move on, please. Looking at the growth trajectory, the growth path of the past years and also the expectations for the future. So a company has grown well, well above market growth 15%, above global market growth, but also above the North American market growth since 2019, revenue almost doubled and EBITDA margin increased significantly also due to economies of scale. But also the key driver for the strong growth in recent years has been that Blue Star has entered into gensets for one -- for microgrids with one strong direct customer as a partner and that's the growth potential, which we expect to boost the top line as well as the bottom line over the next 3 to 4 years in particular, and also a shift in power classes. So Blue Star has managed to increase their share in the larger power classes, larger, I mean, above 500 kilowatts, more significantly than growing in the smaller power classes, particular applications in airports, hospitals, production and large industrial place. And that's the driver for the growth in the recent years, and that's also expected to be the driver for the growth going forward. Let's mention -- talk about a few key parameters for agreement. As said in the introduction, we are acquiring 100% of the shares, signing of the transaction happened yesterday afternoon. We expect the closing of the transaction to happen in the second half of this year. So what's hindering us from closing ASP, the typical merger clearance approval. We do not expect any issues in that apart from, obviously, timing of the processing, but we expect this to happen in the second half of this year. We have, with the seller agreed not to disclose the terms and conditions of the acquisitions, but we can and will say that the valuation here is within the usual market parameters in that business. So we believe that's been a very fair transaction for both, us, as DEUTZ acquirer, as well as the seller, the current owners. Why energy for DEUTZ? Let me give a bit of a glance on that. So first of all, it's an attractive market by itself. Growth potential is fantastic, and it's much less cyclical than our current core markets, which, as you know, focusing on construction equipment, agricultural equipment and so on. So it's always good to be in a less cyclical business to stabilize the company to make DEUTZ more resilient. We want to establish an energy business unit as a new field of application, as a new field of new business models. And we want to base this also on existing business with gensets, which we do have at a very, very small scale for example, our Moroccan entity called Magideutz, who is already active in that field, but on a much smaller scale than what we're doing now. So we're convinced that with the technology, with the service know-how we have as an engine maker including, as I said, the very successful service business, particularly in the United States, DEUTZ has the right to win in this field. And we will be able now to access the market from a position of strength, to access the customers, as well as implement -- develop and implement new complementary business models through this acquisition of Blue Star Power Systems, including -- and I will go on that topic in a couple of minutes, including and obviously, prospectively also using new technologies in the greener field. Why does it fit our current corporate strategy? Our Dual+ strategy, it's actually a very, very nice fit to all of the three pillars or parts of the Dual+ strategy in a classic segment, it will further strengthen our brand by leveraging our existing competencies and our -- and expand our currently small, but prospectively growing DEUTZ Energy business in the next step, in the next years. And green, you will remember that we already last year, we scored the first serial order, our gens -- genset for our 7.8 liter hydrogen engine, the pilot project in -- from China. And that is having now a power gen business by ourselves, so we can actually leverage the strength also with our hydrogen engine, a very successful pilot project. And let's not forget service, because the service for genset and integration genset business, where it makes sense into our existing service network is a very, very strong fact as well in the U.S., but not only in the U.S. So with the acquisition of Blue Star, we gain really in size and relevance in the Energy field. And important is when I said earlier, that we are already today present in the genset business. That is true, but we're with the exception of Magideutz. We are only present in the sort of first part of the value chain in a genset business, as a manufacturer of the engine. And if you look at the total value chain, it's much, much more complex from the manufacturer to the genset system builder, sales distribution, while dealers are directly up to aftermarket. So we see that a few players like Mitsubishi like Volvo, like DEUTZ are mainly active in the first part of the value chain, but others particularly the ones who are doing a very, very successful job, Caterpillar, Cummins, MTU are active in the first two, if not the first three parts of that value chain, not to forget about service and aftermarket as well. So we believe -- and we looked at it very, very structurally where -- in which part of the value chains -- do you have which value pools. It's very obvious when you look at that in detail, that here the further you integrate forward into that value chain, the more successful you are. And that's one of the reasons also, why we are going further forward into that value chain, from a position where we're currently operating rather opportunistically and on a small scale. So the benefit of integrating that genset business is really, as I said before, the energy market much more stable than the cyclical markets, which we are currently present in construction and agri. And due to that, just to explain higher vertical integration, we expect a strong margin uptake in that field. We see a lot of additional growth opportunities. When I say additional growth opportunities, I'm saying that for a reason because Blue Star average stands right now is a very successful entity, strong top line, strong growth potential, strong bottom line and potential to grow the successful bottom line even as it is. Why is it good for DEUTZ, including DEUTZ growth opportunities, it will further strengthen our already strong U.S. business. DEUTZ U.S. is far -- has been fast growing over the recent years particular also by a very, very successful service and aftermarket push, but also by developing existing strong and successful customers. But with Blue Star on top we expect certain synergies, particularly in the sales and distribution field. And we're also expecting synergies, access to customers. We are currently serving as DEUTZ, but also customers that Blue Star is currently serving and DEUTZ is not serving, and not to forget even, let's say, HR topics like talent DEUTZ just becoming bigger in the U.S. than it is right now. We want to transfer this business and what we learn from this business and we get from this business also to other regions particularly in Asia and Africa, but potentially also in Europe, because what I just said earlier about the U.S. is applicable also to other parts of the world, obviously, with different intensity of these different verticals. But in principle, the energy market and the demand for decentralized power generation is a phenomenon, which is not only relevant in the United States. And we want to really use this acquisition and this new business unit energy also to leverage, to bring in, to then market our new technologies and business models like -- such as development green gensets, using our hydrogen technology at Blue Star and beyond. And also system customers, we often with the use of bio and synthetic fuels, that's very, very attractive in the U.S. development of hybrid gensets also in combination with photovoltaic system. So it's also a field going forward. But very important, that's not the main sort of driver of the current business case. That is really on top potential, which we're excited to conquer and to implement. Additional growth, what could that be, a bit more specifically than just said, Magideutz I mentioned already today, small, rather isolated business, great product, but to the focus very much in our production in North Africa for the African markets and also for other, let's say, not overly developed markets, we will now be able to expand this business in the African and European fields larger. We believe also that there is possibility to scale our Power Gen business in Southeast Asia. We do have several partnerships, existing partnerships in China, developing partnerships in India. So there is room to improve. And when we look at the technology and business model point of view, already mentioned of the hydrogen genset based on the pilot projects in China. And also, I haven't mentioned that today in that call, smaller pilot projects in the U.S.A. and Canada, we can now bring that into the market with an own subsidiary and developing new, particularly also hybrid solutions, solar battery solutions and using also CO2 neutral fuel sets. Good. Then let's move on. And I mentioned earlier, we want to grow this business also in the mid and long term. Today, our revenue related to energy is small is roughly EUR 30 million. That's a business Morocco and our, let's say, opportunistic engine sales into power gen. So that's a good starting point, but not more. With the acquisition of Blue Star, we're at in the short term already a top line number of more than USD 100 million, and also euro yet immediately on top of that and we put ourselves, we gave ourselves the ambition of scaling that energy business to EUR 500 million and beyond in the next decade. And you who know as well, we gave us ambitions in service business, where we grew significantly already over the last 2 or 3 years, and we are wanting to target EUR 600 million next year. So we figured out that our organization has many works very well when they are ambitious, but yet realistic targets, and that's where the EUR 500 million comes from, we want to use, so to speak, three vectors to get that. Obviously, first of all, organic growth, expand what we have already, expand the acquired platform, lose the power systems and leverage synergies with our existing business. We want to also bring that green technology vector into top line, into market, expanding the existing technology for renewable energies. Again, the mentioned H2 genset. And of course, this acquisition of Blue Star Power Systems is sort of the first acquisition. We want to continue over the next years with a series of potentially midsized M&As, where Blue Star is just only starting point, but of course, a very, very good starting point and potentially also additional partnership. So similar like service, at DEUTZ, a buy-and-build strategy, which helps us to develop here a relevant profitable energy business over the next years. And 2030 seems far away, but it's actually not that far away. So we are putting the first important step in that. Benefits for DEUTZ, trying to summarize the last 20 minutes or so. First of all, very important, we're becoming more resilient. The genset business is less cyclical than all our other markets. And in addition to strengthening here, further our geographical diversification, the focus is North America, and we are increasing our vertical integration [indiscernible] securing a more stable business. We participate in profitable growth areas. So Blue Star business, the existing Blue Star business is strongly benefiting from a sustainably stronger revenue and EBIT growth than the rest of our business. So in this way, we are also increasing the value of DEUTZ as a whole. And we're developing, the portfolio will continue to be relevant in the future and offers also opportunities for innovation. We can participate more directly in the growth of renewable energies, and we can scale our hydrogen business faster than we're currently able to do so. And we can also bring quickly hybrid systems and business models to success, whether we talk about the already mentioned genset in combination with solar PV systems for decentralized energy supply in developing countries, but also in Australia, where we are currently on a smaller scale, of course, following several opportunities. So that's our -- this is really summarizing the rationale, why we are going to acquire Blue Star. We're very happy with the process of that acquisition so far. It's been a fun process. It's been a process, a very professional -- led by both sides of the negotiation table. The team at Blue Star is super excited about that. They are, of course, super proud of what the company has achieved over the last 20 years, but they're also super proud that DEUTZ which -- and this is really something which I personally enjoy when speaking to, to manage, not only managers like the workforce of Blue Star, they really love the brand reputation of DEUTZ. They love the spirit we bring over there. So it's a combination of they're proud of what they achieved so far, but also they're proud that a company like DEUTZ picked sort of them, as their sort of platform and starting point for the Energy business. So is really, really is an exciting project for everyone involved. I'll hold for a moment, but only for a short moment, because Mark said in his initial comments, we also wanted to give a very, very short update on why we're also developing the area of defense as a potential further field to grow with -- there was some very accurate press information earlier this week, following an interview, where we also mentioned defense as an attractive field to grow in the future. And that's very true. Obviously, it's not announced as the energy -- as our push into energy, where we just announced a midsized acquisition. But let me give you a bit of the rationale why we also wanting to push the defense business. And first of all, I don't think I need to explain anyone in this round that the defense sector, given the changed geopolitical outlook globally is now enjoying much, much different, much, much more attractive growth opportunities than it was the case before 2022. And we do have a strong engine expertise. I think there's no one doubts that out there. We do have a strong engine brand. And we also were in the defense market in the past. And I mean in the recent past, not in the past 100 years ago or 90 years ago, I mean really in the recent past, we just haven't really been tackling this market as structurally as we should have done, and as we certainly will do in the future. So there are possibilities to partner up with others were required to gain scale and now quickly. And similar, like what I just mentioned on energy, defense is relevant for growth in all our three strategic pillars: classic, service green, but also now our growing energy business. Benefits for DEUTZ, we expect very clearly profitability increased demand, high-quality requirements, and that's something where we're extremely good at. We've got a very, very good product range, very powerful very strong, very durable. So everything what is also very relevant in the defense business. And it would certainly strengthen our business with diesel engines and all, in the whole question or the whole path of transformation towards e-mobility and hydrogen and sustainable fields. Yes, that will also become relevant in the defense business. But the focus, at least in the short to medium term is certainly here also in leveraging existing strong technologies. And let's not forget the aftermarket potential and similar like what I just mentioned in the context of power gen resilience, it reduces cyclicity significantly. And as I said, we already have a small scale involved in defense business. So I won't go through all the engine products. We are currently in the future half in the offering. But what you see on the left part of the chart, our engine business covers a range from 30 kilowatts to 530 kilowatts. And we've got our recall in classic defense engines. These are classic engine DEUTZ producing and selling successfully over years, some of them over decades, whether it's going to be the 2013 to 2015, V6 or V8 or -- so with these engines, we are already present in mobile defense equipment, such as 4x4, 6x6, 8x8 personnel carriers and [indiscernible], but also genset. So we are involved in that already. But we do have a very, very strong portfolio of our, let's say, nextgen or newer engines from 2.9 up to the 16.0 and also going forward available from 2028 with the Daimler engines, which we renamed now as TTCD 5.1 to the TCD 15.6. These are the MDEG and HDEP Daimler engines, which are also perfectly suitable for certain particular mobile applications in defense. So that's one of the -- that's one of the fields we want to explore, but also, as mentioned, stationary applications. And let's not forget defense innovation. Green mobility in defense is becoming attractive going forward, not necessarily the focus of reducing CO2. This is more a by-product there. But you can imagine, military vehicles, the further they get to the action, it's beneficial if these vehicles are then being driven by very, very silent powertrain. So that's where electrification, including hybrid systems also come into place. Again, we don't want to use today to focus too much on defense. We just thought it's useful because we received a number of questions to give you at least a bit of an outline, in which way, in which path, in which vectors we are thinking. The focus today is obviously that we are announcing the acquisition of Blue Star Power Systems, and giving you more details on that exciting opportunity or exciting acquisition, which we had just [indiscernible] yesterday, signed the sales-purchase agreement. With that, Mark, I would thank you very much, and hand over to you.

Thank you very much, Sebastian, and thank you for your interest so far. You now have the opportunity to ask any questions. And with that, I would like to hand over to France, our operator. Thank you.

[Operator Instructions] And we have our first question today from Annette Becker from [indiscernible]

I know you will not comment on the conditions of the price, everything. But can you give us a feeling about the volume? What is normal in this business regarding multiples on rails or something like that? And how would you find us, this acquisition? And the next question, who will lead the business, will lead different management stay in place?

I will start with talking of valuation and who will lead management, and then I will ask Timo to comment on the question of the funding and the financing. So if you look at current multiples in power generation, there is a range on the lower end, you're at 6x EBITDA on the higher end, you're up to 12, 13, 14, 15x EBITDA. And as I said, we didn't -- not to disclose, but we can tell you that we're certainly rather on the lower end and certainly not in the double-digit level here. So that's why, yes, that's as much as we can say right now. In terms of leadership, as the current management stays on board, and that's great. We're very happy that the current owner who is also -- or the current two owners who are working as CFO and COO. So they have a very lean management team. They agreed to stay aboard. Obviously, both are different age and one will stay board longer than the other, but that gives us time to also develop a potential success in particular for the -- with all the gentlemen, but the driver stays in board. And we will have that business managed and led by our very successful management, the DEUTZ Corporation of Americas, obviously, with a very, very strong relationship here too, our group management in Cologne. But we are convinced that a successful business like Blue Star is, will be most successful if, obviously, within a certain framework while they get a high degree of freedom to operate. And then Timo to you.

Yes. Thank you, Sebastian. And first of all, of course, good morning to everyone. Well, if we look at the financing side, we can say that, in general, we are financed right now very well. So our finance structure is very sound. But if you do an acquisition like that, I always look at different possibilities how to even, maybe, optimize the structure after we included this deal. But even if we would finance the whole transaction from borrowing or equity ratio is likely to only slightly decreased by some low single-digit percentage amount that we would still stay way above our target of 40%.

Our next question comes from Jorge González from HAIB.

And congratulations, Sebastian and Mike for the transactions. And my first question also regarding the price of the deal, maybe you can give us more color, just saying us if the transaction is going to be accretive in EPS at the first year or maybe it's too early -- or maybe it's too early -- it's too early to comment on this because you are revaluating or thinking of doing a PPA. That would be my first question, please.

Sorry. Thanks for your question, Jorge. Can you just repeat? The connection was pretty bad. If you could try to repeat that.

Yes, sorry. No, I was wondering if you can give us some feedback on the impact of the transaction in EPS at this point?

I think we -- let me not talk immediately on EPS, because that also involves then the final decisions and implications of financing. I would start actually giving a bit of a focus on top line EBITDA and potential EBIT and everything else, I suggest we would derive at a later stage together with you and other interested people, of course. So we're talking about a top line for this year on an annualized basis, which we obviously will not enjoy on an annualized basis, because the closing is only happening throughout the second half of the year. We're talking about the top line of above $100 million. We are talking about an EBITDA margin, as we said in our announcement, which is above the group -- the current group level. So let's say, lower double-digit percentage range, and then also USD 1 million. We do not expect a significant delta between EBITDA and EBIT, at least not as significant as in our current business, because the company has been growing organically. And over the last 20 years, it has developed very well. So it's not as asset heavy as DEUTZ group is. So that will also bring us on the EBIT level in the low double-digit range on an annualized basis. And everything else, I suggest we'll derive later.

Okay. In fact, that was going to be my second question. We can say that the EBITDA margin is on the low teens range, more or less?

It's low double digit, yes.

Okay. And I have also a question regarding the consideration that you take for the -- for classifying us DEUTZ in addition of your equipment from the stationary division or business line. This EUR 30 million, if I remember well, last year, you have around EUR 200 million or EUR 180 million for stationary equipment. So which part -- why you are not including everything in this part of the business?

Well, stationary equipment, I mean, it also includes pumps and other very specialized equipments, which do not necessarily related to energy in particular. So -- but I believe not anticipating your next question, but which could be your next question or is, okay, how we're going to report on that. And we're certainly evaluating here the reporting structure, going forward. We need to see when do we have a relevant size, which potentially would even justify reporting in the new segment, but that's too early. We see currently the business of Magideutz as I said, fairly small and then, selling engines into other external power generation system integrators. This would fall into the energy business and then, of course, now booster. But we're going to evaluate that throughout the second half of the year, how we clarify or how we make here even the reporting structure, as transparent as possible.

Perfect. And my last one, and I know that you don't want to go into much detail today. But regarding the defense slides, can you give us an idea if you are already participating in any process for a new platform, or you're binding for a new platform? Or if there is any specific vehicle that you have already targeted for, or do you think that you can already participate in, in the following 2 to 3 years?

We are in fact actively participating in tenders. We talk -- we'll talk about, let's say, to be transparent about minor tenders right now, but we are actively participating in minor tenders, both in the mobile field of 4x4 and 6x6 carrier, as well as in power generation -- in power generation for military application. So we are -- this is the beginning. And now we want to widen and put that in a more structural approach than we've done it before. But your question was in so far implied also the right statement. It always takes time to scale up here. But we are -- as I tried to show in my short presentation on that, we're doing that with our existing products now, leveraging our existing strength, including certain distributors who are pretty good at that, but we also want to look and identify further factors to grow with a little bit more speed than that. But that's too early to tell more. And there are many -- if there are more questions on that, I will be very reluctant to mention more. We just wanted to give you a glance that this is an interesting field. We identified and we set ourselves up to harvest the fruits which are available here.

No. You mentioned it, it's very detailed already. I missed the name of the platform that you mentioned. Do you mind to repeat that for me?

No, I didn't mention the platform. I just mentioned the type of the vehicles and the 4x4, 6x6 vehicle. By intention, I did not mention the platform.

The next question is from Sebastian -- sorry, Stefan Augustin from Warburg Research.

Yes. Actually, the first question is, can you give us a little bit of insight, how the whole deal actually commenced how did you do find together? What's the reason for selling something like that?

For selling something like that?

How the sale actually to -- was it an open pit or...

I see. I see. I see. Look, we -- we started that the considerations going into the field of energy, particularly decentralized energy, gensets a bit more than a year ago. It was a result of our strategic dialogue, which is our internal strategy process, where together with our regional management, we collect ideas, we evaluate ideas and in the end, we prioritize ideas, what are we going to pursue and whatnot. And we came very quickly to the conclusion that power generation is a field, where a lot of our guys are convinced, it's good. And in that sense, we said, all right, we're going to go for that. And then first of all, we decided should -- is there a region where we would like to focus on, and we quickly said, okay, it's going to be the region of the Americas. And then secondly, the question was, do we build or do we buy? Because obviously, the principal building is typically cheaper than buying, but on the other hand, takes longer. So we looked at how much time and efforts put building take, we came to the conclusion that in order to become relevant, our building would take too much time and we would miss too many opportunities in that field. So then we said, okay, we did a structured market analysis and looked at what was available and in the United States and Powergen you see the 3, 4 really, really large companies. Cummins, Caterpillar, Generic, Cola and with a bit of a distance, the MTU world voice power systems. So obviously, they are not available to last. But then there is a very, very good group of companies in that playing field. And we looked at all of them, outside in, of course, because none of them is publicly traded. We looked at all of them. We spoke to some of them. And in the end, we evaluated that Blue Star is a very, very attractive target. We entered into contact. We spoke negotiated and executed.

The next question is actually on when we look -- when I look at the market, and the most attractive field is obviously in North America, the growing part of the data centers. So currently, with the deal at Blue Star is already, let's say, in that market and selling into that market?

Yes, it is. It's not -- that's one of the reasons why there's been also a fairly good growth in the last years, because of going into these larger fields. But it is still not the largest end market for Blue Star. But the market is that attractive. And is actually attractive for both in the short term, the emergency power supply, where Blue Star is very strong at but also in the midterm, the constant power supply in the mid- to long term, even sort of the green, the green driven power supply. And currently, particular data center, data center genset business is booked, is sold out for 18 to 24 months with the competitors, as well. So it's really an attractive market, where, as you said, it's the largest market, it's the largest growing market, and that's why it's huge potential for Blue Star as well. But the others also -- the other markets are also very, very attractive. So we -- this is not a data center-only case. I think that's important to mention.

Yes. But it's good that it has contained, definitely. And another one is, if I look at the revenue split by product category, I do not see any service. So I assume that with the exception of the component part Blue Star is not doing any service to its gensets at all, in the view of like man hours. Is that correct?

That is correct. And it is correct or also very well explainable by the current distribution of channel Blue Star is using, 90% of the business is being sold -- the products are being sold via a very, very well functioning distribution network. We have no intention of changing that. But having said that, obviously, the distribution network also takes care of service. But we do see in our analysis that this very good distribution network still offers white spots in the country. And it offers in some areas, actually white spots where DEUTZ has a red spot, I referred to the company color here. So in that sense, it's a good possibility for us to go into that as well, because, as I said, and that's also shown on the value chain, right, service and aftermarket is always very relevant. And here, we clearly have, as we like to say, the right -- not only the right to play, but the right to bid. So that's potential as well. But we're also not saying in 5 years, we're going to be -- we're going to have 30% service revenue out of Blue Star because the business is already very successful being the OEM even without the service and aftermarket. But certainly, we won't -- we won't leave that field untapped.

Okay. And the final question is, when I now look at all the expenses you have on the green side right now, is there any conclusion that with the acquisition of Blue Star that would be lower expenses for green right now? Or is that something that we will see rather on the C&D, where there is a focus for green -- like how should I view that?

Well, it's the latter one. I mean these -- the acquisition of Blue Star and entering into energy is not related to any strategic change of direction of green at all. So in parallel, as you know, we are, let's say, we have done a bit of a green restart, including announcing or appointing a leadership with Green CEO. And this gentleman with his team together is currently evaluating our current Green portfolio, according to the same criteria we kept mentioning in this context here. Do we have a right to play? Do we have a right to win? The process is going well, and you can certainly expect first sort of directions on the Capital Markets Day. But again, as this respect the decision for power generation is by no means a decision against green mobility. We are -- we want to broaden our business models, our markets and so green development of a green technology field certainly is still a core part of DEUTZ and quite frankly, with that entering into power generation, we believe we're actually making green more attractive, more -- potentially more successful, because we can place our green products particularly the H2 combustion engine, we can place that into own end products in an attractive field. So I see it actually rather as a supportive transaction towards green than sort of a fight for resources, which the Green business would lose, not at all.

[Operator Instructions] We have a question from Dario Dickmann.

Could you maybe elaborate a little bit more on the strong expected top line growth of Blue Star, especially if I compare to Generics commercial and industrial products guidance, which is for decrease in mid- to high single-digit rate and Blue Star seems to have growth rates above 25% for this year?

Well, first of all, this year, the growth rate, I mean, it's well on track, it's not a prediction. We see that in the year-to-date financials that we are at least at the level of the top line level, which we indicated in that picture and it's mainly driven by the fact that Blue Star has developed -- to further develop the product portfolio into the larger power ranges, and that's a field where Generic, which you mentioned, is already very strong at. So Blue Star came from entering into 20 years ago and 15 years ago entering into the low power ranges and -- at genset. Well, I'm simplifying a lot right now, but obviously, genset is a genset, whether it's a small genset or a large genset. So it is in principle has the same components. So obviously, manufacturing larger genset binds more resources than manufacture smaller gensets not by the -- not proportionately to the power range. So Blue Star needed to establish themselves as a successful player in the market, and has been very successful doing so in the last 2, 3 years that the companies have sold out for this year and therefore, to '25 as well, so that's why that's where the growth comes from, entering into new fields start securing the one mentioned microgrid customer, which provides for a lot of the growth. And as I said, the larger genset. So yes, this was one of the core questions we looked in our diligence as well, of course.

Okay. Great. And last question on the defense part. Did I understand it correctly that you mentioned that you're already in the defense segment with some engines on top of -- you just mentioned?

That's correct. We are in there with engines, which are, let's say, we call them internally, the legacy engines, the very well-established engines, but also our exchange business, that's our business, we operate out of our wind facility, where we repair or, let's say, remanufacture old engines, bring them, give them a second or even a third life. That's also a field where we provide services to the German Army. So yes, we are in there, but not as structured as we will be in there in the future. It's not of our -- so far, and you see the alternate reporting structure, and that's also the way our internal sales organization is structured. We focus very much on agricultural equipment, construction equipment, material handling in our mobile and our engine business so far, and we will go much, much more structured into defense because we've got good products for that. We've got good demand for that. We've got great capabilities with our engineers, our application engineers to make our products fit to the needs of the customers, and that's the field we're now actively entering.

Ladies and gentlemen, that was the last question, and I would like to hand back to Mark for closing comments.

Great. Thank you very much, and thank you very much all participants for your interest in DEUTZ and our acquisition. And I think we could also give you a glim into what we are planning when it comes to the defense sector. Stefan already referred to the Capital Markets Day in October, you already have the -- save the date, that's October 8, and we hope to talk to you soon. If there are any further questions, please do reach out to me. We're happy to answer. There's also our new IR colleague, Rolf Becker on board, who can also answer any questions and [indiscernible], so we are happy to do so. And with that, I would like to thank you, and have a good day, all of you.

Bye.