M&A Activity in Renewable Energy Sector Set to Increase Dramatically

Findings from a new survey show that, despite the difficult conditions of the last 18 months, renewable energy deal-making has remained remarkably robust and is expected to dramatically increase in the next 12 month

Commissioned by Rodl & Partner, the leading independent professional services firm, and carried out by mergermarket, the comprehensive overview of the global renewable energy M&A market found that in 2009 there were 228 deals announced worth a collective €49.7bn – a deal volume mirroring the level of activity witnessed at the height of the M&A boom in 2007 – and that the first two quarters of 2010 have also seen brisk deal flow.

The survey, which was conducted earlier this year, garnered the opinions of 100 senior M&A professionals from across the globe who are directly involved in the renewable energy sector and asked their opinions on the key challenges and opportunities that exist in the market, as well as the M&A outlook over the coming year.

Key report findings include:

* 78% of respondents expect M&A activity to increase over the coming 12 months.

* 70% of survey respondents note that accessing finance has been the most significant obstacle to deal-making in the space.

* 41% of respondents expect utility companies to be very active acquirers of assets going forward, as renewables drive to meet parity with traditional forms of energy, suggesting that buy-side interest is no longer dominated by niche investors.

* 67% of respondents expect private equity investment in the sector to increase in the coming months.

The geographic breakdown of activity shows that North American and European markets continue to dominate, accounting for 74% of overall deal flow since the beginning of 2005. Nevertheless, there is huge potential in emerging markets and countries in South America and Asia-Pacific are beginning to attract a degree of investment.

“The renewables industry has proven to be a major driver for global economic growth. The increase in deal-making across the globe is a solid indicator for the continuation of high transaction activity in the coming years. Even in the light of reduced feed-in-tariffs in important markets like France, Germany, Italy and Spain, investments in renewable energy continue to be highly attractive,” comments Dr Marcus Felsner, partner of Rodl & Partner,

Additional findings include:

* Europe is identified as the region likely to witness the greatest level of renewables M&A activity in the coming year, with 80% expecting the region to witness significant activity and 45% identifying it as the region that will witness the most activity globally. Respondents point to markets in Western Europe – particularly France, Germany, Denmark, Spain and Italy – as those that will comprise the principal hubs of activity, as these are countries where there is public awareness regarding climate change, and w here there is government support for the sector.

* Wind power is identified as the renewables niche poised to see the greatest upturn in M&A in the coming 12 months, with 83% of respondents expecting the wind power sub-sector to experience significant M&A activity in the next year. Also 73% say that this is the most probable destination of private equity funding.

* Government support is viewed as the principal external factor that will drive M&A over the next 12 months by 84% of respondents.

* 55% of respondents identify tax breaks as the most effective policy in driving renewables investment. Feed-in tariffs are cited by 44% of the respondent pool, while just over one-quarter of respondents (26%) point to capital grants.

* Two-thirds of respondents expect electricity prices to rise in the coming 12 months, with a respondent suggesting that this will be due to rising oil and gas prices, as well as the general economic recovery increasing demand.

* Just one-in-ten respondents expect IPOs of renewables firms to decrease in the year ahead – 9% expect it to decrease slightly and a further 1% expect that it will decrease greatly.

* European and North American bourses are tipped to be the main locations for listings by 56% of respondents expecting an increase in IPO activity. Just 19% of respondents expect APAC bourses to lead listings activity.

Renewable energy deals have continued to come to the market since the onset of the financial crisis, but the austere financing environment has curtaile d the M&A aspirations of some would-be acquirers. Despite this, when compared to other industry sectors, banks have been generally willing to finance transactions in the renewable energy sector, often due to the level of government involvement and stable income streams generated.

Regardless of the incentive schemes that are on offer, the renewable energy sector’s fundamental value is only set to increase as the pricing of renewables sources reaches parity of traditional fossil fuel sources. This is likely to ensure that the boom of recent years is sustainable and therefore investment is likely to increase as the space becomes more attractive to traditional utility companies, industrials groups and large private equity funds. The full survey is available at: www.roedl.com.

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