Tuesday, July 9, 2024

Renewables acquisition and merger tactics are changing

According to CohnReznick Capital Markets, the 2023 U.S. renewable energy market will be marked by the juxtaposition of immense momentum from recent changes in U.S. policy with uncertainty emanating from global market upheavals.

With 2,400 GW of renewables expected to come online by 2027, the globe will install as much renewable energy capacity in the next five years as it did in the previous two decades. With market change comes the possibility of major merger and acquisition (M&A) activity, with the character of this activity projected to evolve.

Throughout 2020 and 2021, M&A activity for renewables surged as valuations for platforms, which included project portfolios and corporate development teams that manage them, reached all-time highs. Now with increasing capital deployment rates, there is a shift from majority platform M&A activity to transactions in which investors could take a minority stake.

“Investors are providing growth capital in the form of a minority stake, often receiving preferred equity in a company that has the potential to grow and expand in the post-IRA world, in which company value could increase substantially over the next few years,” said CohnReznick in a whitepaper.

There is a growing trend of international players acquiring experienced U.S. developers with strong project portfolios, and CohnReznick said it expects this trend to continue in 2023. International independent power producers and infrastructure funds see the acquisition as an efficient tool to enter or expand their presence in the growing North American market. Corporate M&A activity that includes developer experience and a portfolio of projects offers scale and transaction efficiency that the acquisition of individual projects aren’t able to match.