London, 16 March 2010 -- Renewable energy is accounting for an increasing slice of overall M&A activity in the power utilities sector. Deal numbers and total M&A value in the sector as a whole declined significantly in 2009 but the decline in deals for renewable assets or technology was much less marked than in the wider sector. The share of total sector value attributable to renewables deals rose from 17% in 2008 to 25% in 2009 – accounting for US$33.4bn of gas and electricity’s US$131.1bn total deal value.
These are some of the key findings in Renewables Deals, PwC’s annual review of mergers and acquisitions activity within the global renewable power market. The number of renewables deals fell by over a third (36%) year-on-year from 2008 to 2009 but average deal size (for deals with disclosed values) rose by a third (34%) – up from an average of US$45.5 million to US$60.8 million.
There was a significant but relatively modest fall in total renewables deal value – down 14% from US$38.9bn in 2008 and much less than the 50% fall in total M&A value for non-renewable power assets. In 2008, wind power accounted for the largest slice (42%) of M&A value in the sector but this fell to just 19% in 2009. The total value of wind power deals shrank 62% from US$16.5bn in 2008 to US$6.3bn in 2009 with a third fewer deals. The wind power deals that did get announced were for much smaller values - average wind deal value was down 44% year-on-year.
A surge in large hydro deals buoyed overall renewables Deals, five of the 10 largest deals in 2009 involved hydro assets with a spread of deals in China, Europe, North and South America reflecting a variety of deal motivations and circumstances. If we exclude hydro deals from our review, it leaves a very different picture for the rest of the sector – the total value of non-hydro deals fell 36% from US$28.9bn in 2008 to US$18.4bn in 2009 and deal numbers were down 38% from 740 to 460.
Deal value in each of the other (non-hydro) major segments of the renewable energy sector fell significantly, with the exception of the ‘diversified’ segment where two large deals – the US$3.5bn Acciona and the US$1.5bn TransAlta purchases (see the ‘deal makers’ section) – distorted the overall picture and kept deal value up.
The total value of solar deals followed a similar course to those in the wind power sector. Total solar deal value shrank by nearly half (44%) from US$6.3bn in 2008 to US$3.5bn in 2009 reflecting reduced deal activity and smaller average deal sizes Total biofuel deal value fell two-thirds from US$2.6bn to US$1.9bn. Deal numbers in all the major segments (including hydro) also fell with the largest falls in biofuel deals (down 66%), wind (down 32%) and solar (down 31%).
Hydropower accounted for half of the 10 largest deals of 2009 in contrast to 2008 when wind dominated and only two of the top 10 deals were for hydro assets. The largest deals were also more geographically dispersed with all of the major markets represented in the top 10 compared to 2008 when seven were European deals.The biggest deal was the US$6bn transfer of power generating units in the Three Gorges Hydroelectric facility in China from parent company China Three Gorges Project Corporation to its majority-held Shanghai- listed power producer China Yangtze Power. The deal was the most notable example of a number of deals in the Chinese power utilities sector in which power generation assets were moved into listed entities as part of their continued restructuring and integration process.
Away from Europe and China, the largest renewable energy deal was in North America with TransAlta’s US$1.5bn purchase of Canadian Hydro Developers.
Mark Hughes, European energy leader, PricewaterhouseCoopers, said:
“Private equity is showing a high level of interest in renewables technology purchases as illustrated by the HgCapital/AIG Financial Products Corporation deal in solar and activity in the wind sector by players such as Nordic Capital and Riverstone Holdings. Another trend in the technology deal space is the increasing role of players such as Siemens and Rolls Royce providing early stage funding through stakes in engineering and technology providers in the nascent wave and tidal sector. In the past, such funding might have come from venture capital funds but they are becoming more risk averse in the current climate.”
Europe continues to be the focus for the largest concentration of renewables deals, accounting for 44% of all deals in 2009, up from 38% in the previous year. In 2008 Europe accounted for about half of total renewables deal value. This fell to 38% in 2009, still by far the largest share of any region, but down because of the impact of the value of large hydro deals in China and Columbia which helped push up the Asia and South America share. Together these two regions accounted for 36% of 2009 total deal value, up from 19% in 2008.
Utility companies, who have been the biggest buyers of renewables assets, face massive capital investment challenges to replace ageing infrastructure and to modernise through, for example, the introduction of smart grids. These companies will be assessing how best to manage this while also maintaining their corporate credit ratings. This could inhibit deal flow with renewables having to compete hard for capital with other types of energy assets as utility companies prioritise investment that they perceive will have the most short to medium term strategic value.
In many parts of the world, wind power is coming of age with an acceleration of new projects. This growth is putting pressure on the supply chain and, in turn, this is promoting M&A interest. We are likely to see more financial investor in companies that are occupying sought-after components or services in the supply chain. Corporate buyers in the form of wind farm developers and operators will be similarly interested as they seek to secure supply for their own projects. Similar bottleneck issues affect the solar supply chain and, looking much further ahead, are likely to be felt in the wave and tidal sector.
Ronan O’Regan, director, PricewaterhouseCoopers commented:
"The coming year is set to be another tough one for renewables deals. Despite the underpinning of renewables by incentive mechanisms in Europe, the US and some other territories, the triggers for an upturn in M&A continue to be uncertain. Financing conditions remain constrained. Signals for a convincing recovery stay mixed and, indeed, there remains a significant risk that recovery could stall."
Note to Editor:
Renewables Deals includes analysis of all global renewable power sector deal activity. We define this as all deals relating to power generation by biofuels (incl. biomass, biodiesel and ethanol), solar, wind, hydro, tidal/wave and geothermal sources. We include deals relating to manufacturers and developers of renewable technologies (for example, wind turbine manufacturers and solar technology firms), which we identify in a separate ‘technology’ category. We exclude deals relating to nuclear power assets, those centred on energy efficiency and purchases of development rights. This year, we have expanded the range of data sources to provide the fullest possible account of deal-making for renewable power assets. The analysis is based on published transactions from the Dealogic ‘M&A Global database’, supplemented by databases from John S Herold; Mergermarket; Capital IQ and Thomson. Analysis encompasses announced deals, including those pending financial and legal closure and those which are completed. Deal values are the consideration value announced or reported including any assumption of debt and liabilities. Figures relate to actual stake purchased and are not multiplied up to 100%. The location of the assets being acquired determines the analysis location. The total volume and value of deals differ slightly to those listed in our Power Deals 2009 publication due to the subsequent deduplication of one US$98 million deal. The Asia Pacific region is deemed to include Australasia, except where otherwise explicitly.stated. Throughout the report, the Russian Federation is treated as a geographic entity in its own right. All presented numbers of deals exclude deals with no reported value. A full list of transactions throughout 2009 is available by visiting the Renewables Deals website at www.pwc.com/energy .
Elaine Bailey, media relations, PricewaterhouseCoopers
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