Renewed interest—the future looks bright for renewables M&A

6 July

Renewed interest—the future looks bright for renewables M&A

Ever since the green bubble burst earlier this year, investors have been more discerning. RENIXX, a global renewables stock index, topped out in January before losing more than 30% of its value over the subsequent four months.

But, now that the froth has been beaten out of the market, things are turning a corner. The index bottomed out in the first half of May and has been making a steady recovery ever since, gaining around 20% since its recent nadir.

The total volume and value of M&A in the sector have increased steadily in recent years. The €10.9 billion worth of deals made so far this year—in spite of this short-term setback—suggest 2021 may not be far off last year's blockbuster €27 billion total.

Solar express

Demand for M&A and capital markets events was always going to recover. Long term, investors are highly bullish on the clean energy sector—hence the recent bubble. Three weeks ago, Spanish firm Solarpack attracted a €881 million takeover offer from EQT Infrastructure, the first in a slew of potential transactions as buy-side pressure and value expectations align.

Both Spain and Italy have been the second and third most active European countries in this space (after the UK), respectively, since 2015. They are also both teeming with potential renewables deals. The local energy majors, Eni and Repsol, are both racing to build critical mass to support clean energy carveouts and will aggressively pursue local targets.

In Northern Europe, where wind is king, Orsted has mandated advisers to sell off Hornsea Two, the world’s largest offshore wind farm, the kind of asset that generates keen interest from financial sponsors. Indeed, in 2018 Orsted sold 50% of its Hornsea Project One farm to Global Infrastructure Partners in a deal valued at £4.46 billion.

Under African skies

Where will buyers be looking next? While Europe has been a renewables forerunner, policymakers grasping the nettle on emissions targets, demographic pressures and weak economic growth don't make for the most exciting long-term plays.

But, according to the International Energy Agency, one in two people added to the world population between now and 2040 will be born in Africa. This population growth and the emergence of middle- and higher-income households across the continent will see the greatest increase in energy demand of anywhere in the world.

Actis and Mainstream Energy are preparing the multibillion-dollar sale of Lekela, a pan-Africa platform that country-risk-averse buyers may shun, but strategics familiar with the region are likely to fight for the asset. The long-term fundamentals are just too compelling.

Largest European renewables deals (2015-2021 YTD)

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