The Cross-Border M&A Reporter A Global M&A/mergermarket report on cross-border M&A activity. May 2008

Transcription

1 The Cross-Border M&A Reporter A Global M&A/mergermarket report on cross-border M&A activity May 2008

2 Contents Foreword 1 Methodology 1 Trends in mid market M&A activity 2 A global private equity health check 5 12 Historical M&A Analysis 16 Selected Global M&A deals since Global M&A Contacts 20 Notes 21 The Cross-Border M&A Reporter

3 12 A global analysis of mid market M&A in the alternative and renewable energy sectors M&A activity in the alternative energy industry (which encompasses firms active in the renewable energy sector as well as other companies that generate energy from sources other than fossil fuels) is coming of age, particularly in the mid market arena. Indeed, mid market ($30m-300m) M&A activity in the sector rose from 47 transactions worth $4.7bn in 2006 to 72 acquisitions valued at $7.6bn in Furthermore, in recent times, alternative energy transactions have continued to come to market. In the first three and a half months of 2008 alone, 22 mid market deals worth $2.2bn took place, a positive sign that deals in the space will continue to be announced regardless of current market volatility. Mid market deal flow in 2007 European buyers dominated the bidding for global mid market alternative energy assets in 2007, accounting for six of the top ten mid market buyouts. Iberian firms operating in the sector are heavily focused on mid market M&A growth four of the top ten deals announced in 2007 involved Iberian bidders. The largest deal conducted in this space was the December 2007 acquisition of Pebble Hydro-Consultoria Investimentos e Servicos Lda, the Portuguese hydro assets company, by Banco Espirito Santo de Investimento, the Portuguese investment bank, and Energias de Portugal, the Portuguese electricity generation company, for $256m. Deals in 2007 were not confined to European targets. Brazilian ethanol producers and other renewable energy firms were also in vogue in 2007, with four sales in the year s top ten deals. The market was led by what was also the largest mid market private equity buyout of the year, which saw two US private equity firms, Riverstone Holdings and The Carlyle Group, along with Cia Acucareira Vale do Rosario, the Brazilian sugar and ethanol producer, acquire a 60% stake in Cia Nacional de Acucar e Alcool, the Brazilian joint venture specializing in the production and trade of sugar and ethanol, for $240m. Top 10 alternative energy mid market private equity deals YTD Announced Date Status Target Company Target Country Bidder Company Bidder Country Seller Company Seller Country Mar P Air Energy SA Belgium Air Energy Holding NV Belgium 297 Aug C Zephyr Investments Ltd (33.33% United Infracapital Partners LP; United Arcapita Bank BSC Bahrain 289 stake) Kingdom JPMorgan Asset Management Kingdom; USA June C Zephyr Investments Ltd (33.33% stake) Mar C Southern Kuzbass Power Plant OAO (93.35% stake) Dec C Pebble Hydro -Consultoria Investimentos e Servicos Lda Mar C Cia. Nacional de Acucar e Alcool (60% stake) United Kingdom Infracapital Partners LP; JPMorgan Asset Management United Kingdom; USA Englefield Capital LLP Russia Mechel OAO Russia Siberian Coal Energy Company; Territorial Generating Company No. 12 Open Joint- Stock Company; Unified Energy System of Russia Portugal Banco Espirito Santo de Investimento; Energias de Portugal SA Brazil Carlyle/Riverstone Renewable Energy Infrastructure Fund I; Cia. Acucareira Vale do Rosario (minority shareholder group) Deal Value USD (m) United 287 Kingdom Russia 265 Portugal Babcock & Brown Australia 256 USA; Brazil Cia. Energetica Santa Elisa; Global Foods Holding Brazil; 240 Oct C Callis (Four wind farms) Hungary Iberdrola Renovables Energias SA Spain Callis Hungary 224 July P Santelisa Vale SA (15% stake) Brazil Goldman Sachs USA 214 July C Isofoton SA (26% stake) Spain Deya Capital SCR SA Spain 205 Mar C Brazilian Renewable Energy Company (undisclosed stake) Brazil Ron Burkle (private investor); Steve Case (private investor); Vinod Khosla (private investor) USA; India 200 Source: mergermarket

4 13 Deal flow in 2008 As mentioned earlier, the first three and a half months of the year have seen something of a further acceleration in alternative energy M&A. Indeed, there have already been nine transactions worth over $100m in Top of the list was the March MBO of Air Energy, the Belgian company specializing in renewable power generation, by its management and Eneco Holdings, the Dutch electricity and gas distributor, for $297m. The deal s bid premium was 80.14%, highlighting the buyer s increasingly positive outlook on the sector s growth prospects. Deal outlook Looking forward, alternative energy deal flow looks promising with a large number of potential M&A transactions likely to come to fruition in coming months. For example, AIM-listed Novera Energy, the UK renewable energy firm, has attracted the attention of Terra Firma and 3i, two UK private equity firms. Between them, the two houses have already acquired a combined 38.2% stake in the company, with Terra Firma holding a 28.2% stake and 3i holding 10%. In February 2008, 3i reportedly offered 90p per share for Novera, valuing it at 118m, while Terra Firma is currently looking to make a counteroffer. Elsewhere, Novera s AIM-listed counterpart Ecoenergy International is further down the deal pipeline, having recently rejected a 27.5p per share takeover approach from carbontrading group Trading Emissions. The offer was rejected as not high enough, and could spark a bidding war between Trading Emissions and the Tchenguiz Family Trust, who owns 18.3% of Ecoenergy and is also examining a potential bid for the company. Switching to mainland Europe, the Italian producer of renewable energy Tolo Energia is also seeking acquisitions, according to reports. Attractive candidates would be start-up companies in the field of renewable energy (mainly biogas and photovoltaic) with projects and approved plans ready to be implemented, but lacking financial and/or technical expertise, the chairman of the company explained. The firm will be able to invest up to 80m in cash, meaning that it will be able to fund a project budget of 800m by leveraging subsidiaries and other investors. Indeed, extensive debt financing is still relatively available in the renewable energy field, where equity shares are usually limited to a maximum of 20-25%, and serves as another appealing aspect to deal making in the sector. The Cross-Border M&A Reporter

5 14 Nor are mid market alternative energy transactions limited to Europe. The Dubai Group, the diversified financial services company of Dubai Holding, recently announced that it invested $49.5m to acquire a 30% stake in Malaysia s GBD Investment, which operates the largest biodiesel plant in South East Asia. The plant produces 200,000 tons of biodiesel and pharma-grade glycerine a year, and construction has started on phase II of the facility, which will increase annual production to 500,000 tons. Similarly, San Miguel, the Filipino conglomerate, is reportedly interested in bidding for three domestic geothermal assets being auctioned by the government. Drivers of M&A and sector growth Present and future deal flow in the sector is being boosted by a number of wider developments in the global economy. High energy prices are possibly the most influential driver oil prices are now hovering around $115 a barrel while the cost of gas is likely to be 45% higher than in Likewise, coal producers will reportedly settle their 2008 prices at $305 per ton triple last year s figure. The impact of rising commodity prices tends to positively affect alternative energy M&A flow, as energy firms whether they are producers or consumers increasingly look to diversify their reliance away from fossil fuels. Political regulations have also had an important positive influence on M&A activity in the sector of late. Driven by the need to espouse more environmentally-friendly sources of energy, as well as diversify sources of energy-generation in the name of national security, many governments have actively encouraged the development of alternative energies. The European Union (EU), for example, recently imposed renewable energy targets on its member states, with each state having to derive around 20% of its energy consumption from renewable energy sources by In addition, the EU wants to fuel around 10% of Europe s transport with vegetarian-based fuels, despite criticisms from environmentalists, MPs and scientists. Even the US infamously hounded by the global environmental community for refusing to sign the Kyoto Protocol has set a goal for itself to stop the growth of greenhouse gas emissions by The long-term nature of alternative energy has meant that it is relatively unaffected by business cycles, primarily because the political & environmental drivers are not going to disappear in the short to medium term. Indeed, one industry analyst noted that from a long-term perspective, alternative energy and environmental technology are going to grow considerably. Another analyst stated that alternative energy companies could sustain annual growth rates in excess of 20% for the next two decades or longer. He added that while alternative energy investors have retreated from the market of late, no sector outflows have been seen and fundamentals continue to look strong. One need only examine Portugal s wholesale implementation of alternative energy schemes to realize the incredible potential of a sector that is not only environmentally-friendly, but also economically viable. With no fossil fuel resources of its own, Portugal imports up to 85% of its primary energy requirements. With energy prices rapidly rising (oil prices have doubled in the past three years), the government chose to embrace the sector, which accounted for 41%% of the country s energy needs in This percentage will rise to 45% by the end of 2008 and 60% by As a result of these drivers and the successful execution of large-scale alternative energy projects, activity in the sector has increased dramatically, with financial institutions and other players looking to jump on the bandwagon. General Electric announced earlier this year that it plans to double its investments in renewable energies to $6bn by 2010, up 50% on last year s planned $4bn venture into the market. BP is also looking for ways to increase its exposure in the sector. The UK oil company is set to invest $1.5bn in the sector this year, the same amount it invested over the preceding three years combined. Furthermore, the number of alternative energy funds has mushroomed of late, with F&C Investments, Schroders Investment Management, Sarasin & Partners and Cowen Asset Management having all recently set up specialist funds to invest in the sector.

6 15 A bright future The impact of this ballooning interest in the sector has driven alternative energy firms valuations higher. The WilderHill New Energy Global Innovation Index, which comprises global alternative energy companies, more than doubled in value over , with double-digit increases in firms individual share prices being the norm during the first half of The upward trend continued throughout the year, with Vestas Wind Systems, the Danish wind power company, recently reporting a 7.7% increase in revenue estimates for 2007 following a strong sales development in the last quarter of the year. As other nations follow the Portuguese example and make inroads into the economic viability of the sector, the prognosis for mid market alternative energy M&A activity looks ever stronger. Further sector consolidation driven by either strategic or private equity players is inevitable in a sector which is still considered to be in its infancy. Furthermore, the drive for scale across the various fledgling areas of alternative and renewable energy means that even with rising valuations many M&A deals will still be in the mid market range in the near term at least. In addition, areas of geographical specialization will play a role in the sector s future development. Danish company Vestas, for instance, specializes in the production of wind turbines, and is the current world leader in wind power. Meanwhile Portugal is well-suited to wave-powered renewable energy schemes due to its long Atlantic Ocean coastline. As a result, cross-border M&A deals are highly likely to rise in the future as bidders look to incorporate specialized talent from across the globe. The Cross-Border M&A Reporter