M&A International Inc. Alternative Energy M&A - Western Reserve ...

4 Alternative Energy M&A
costs may fall due to technological innovation and
economies of scale. Technological advancements
continue to cause the marginal cost of renewables to
decline, while non-renewables continue to see
marginal cost inflation.
M&A Overview & Analysis
Rising M&A deal volumes highlight buyer interest in
the sector with volumes growing at a CAGR of 19%
over the past three years. At the same time, total
deal value fell steadily at a CAGR of 25%, implying a
gradual correction in valuations following the recent
credit crisis.
$bn
Figure 2: Value and volume of M&A transactions
20
15
10
5
0
June 2010
132
132
187
200
150
100
50
18.2 15.4 10.2
0
2007 2008 2009
Total Deal Value No. of Deals
Source: Copal Analysis, Capital IQ
No. of Deals
2009 witnessed a record number of M&A deals in the
alternative energy sector as deal volume reached a
three-year high. This increase is attributable to two
key factors:
(i) A favorable shift in the regulatory environment and
the proposed increase in government spending in
the alternative energy sector as a result of stimulus
spending.
(ii) Valuations corrected sharply in 2009, making
growth through acquisition a more feasible strategy.
This prompted various buyers to acquire already
operational assets at discounted prices.
We expect these factors to continue to drive M&A
activity in the near future. In addition, since the credit
crisis, financial investors have been eager to invest
in alternative energy based on its sustainability and
stable cash flows.
Alternative energy M&A volume share
increasing
In 2009, alternative energy transactions accounted
for a record 30% of total M&A deals in the utility
sector, compared to 21% in 2008 (Figure 3). In
absolute terms, the total volume of overall power
deals has declined, while for the alternative energy
sector it has increased. The steady growth in the
alternative energy sector’s share of M&A deals
illustrates its growing importance in the energy mix in
the future.
Figure 3: Alternative energy M&A deal volume: %
of total power deals
No. of Deals
700
600
500
19% 21%
30%
661 627 619
400
2007 2008 2009
Total Utility Deals Alt. Energy Deals Share
Source: Copal Analysis, Capital IQ
Operational assets attractively valued
Over the past three years, deal valuations involving
solar companies have fluctuated slightly. However,
in the case of wind companies, variations have been
much greater (Figure 4). During the recent credit
crisis, deal valuations fell as the impact of
decreasing energy consumption and falling carbon
prices (2008–2009: EU prices fell from around
€30/ton to approximately €15/ton) weakened
fundamentals and reduced the viability of various
alternative energy projects.
8
6
4
2
0
Figure 4: Transaction value ($mn)/MW *
1.4
6.5
2.1
6.3
1.0
2007 2008 2009
Wind
Solar
5.5
Source: Copal Analysis, Capital IQ
* Based on top 50 deals by deal value for each year (2007–2009)
However, transaction volumes increased to 187 in
2009 from 132 in 2007, their highest level in three
years. We believe that higher M&A volumes have
been driven by industry players’ recognition of the
commercial and strategic logic of acquiring
alternative energy assets, which has been further
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