Global CleantechSector Report 2012 www.mergers-alliance.com
Sector Report 2012Contents Report 2 Introduction 3 Report Highlights 4 Deal Focus by Country Americas Brazil 8 Mexico 10 USA 12 Asia, Africa and Middle East China 14 India 16 Japan 18 South Africa 20 Turkey 22 Europe France 24 Germany 26 Italy 28 The Netherlands 30 Poland 32 Russia 34 Scandinavia 36 Spain 38 United Kingdom 40 Contacts 43 Transactions 44
Sector Report 2012 Sector Report 2012 Report Introduction About the report Whilst the major economies of the world continue to navigate a difficult credit environment and weaker This sector report was edited by Andre Johnston For more information on this report please growth prospects, the cleantech industry remains of the Mergers Alliance central team. To compile contact Andre Johnston, Mergers Alliance our findings we conducted interviews with our Research Manager. somewhat unique in that it continues to develop strongly sector experts from each member firm within the in almost all countries. As you will see from our sector Mergers Alliance partnership. We also surveyed Andre Johnston owners and senior executives within cleantech Mergers Alliance experts across the world whilst each country may be at sector organisations and private equity investors +44 207 881 2967 different points in their development trajectory, prospects worldwide. email@example.com in almost all are compelling. Deal Focus This development is being driven by the need for governments to tackle climate change on a As the global recovery takes hold, we at Mergers Alliance are ideally placed to help you. Whether multi-lateral basis and ensure security of energy you seek growth through acquisition, wish to Within each country’s Deal Focus we review Additionally, we provide an overview of the supply for their populations and industries over restructure or realise value in your business, merger and acquisition (M&A) activity, focusing cleantech sector as a whole, highlighting the the long term. Legislation and attractive fiscal our international advisors are in a unique position on key deals and trends within the cleantech market structure as well as commenting on the incentives are key to much of the recent growth to help you. Our member firms have a prominent sector. Cleantech is a shortened form of clean key trends and the factors influencing M&A. We and in most countries these levers will drive position in boardrooms across the world and are technologies. We define cleantech as those provide our own insight on how we think the investment for decades to come. renowned for delivering award winning partner- activities relating to renewable power generation: market might play out over the coming 18 led advisory service with seamless international Wind farms, solar, hydro, waste to energy, months and attempt to identify key investment You will find in our report a great deal of cooperation. geothermal, biogas, biomass and tidal. Our opportunities. We also provide a summary of market-leading insight into the key issues report also includes transactions relating to two government policies from each country facing the sector in 2011 and beyond: how We hope you enjoy reading our report and energy efficiency and resource management: that we believe has, or will, influence M&A the industry needs to operate on a global basis, welcome any thoughts or additions you might Recycling, air & environment management, activity in cleantech. why geographical comparative strengths are like to contribute. energy infrastructure, water treatment / focusing investment in each country and how conservation. We have included tables of Key terminology: PV (Photovoltaic), GW broad state initiatives and targets are ensuring recent transactions where the target company (Gigawatt), MW (Megawatt), KW (Kilowatt), that transactions get done. Our work also is located in the country under review. Mwh (Megawatt hour), kWh (Kilowatt hour) highlights the key developments in different cleantech sectors and how this is shaping the M&A strategies of mid-cap companies, global corporates and the private equity industry alike. Andy Currie Disclaimer Chairman of Mergers Alliance This publication contains general information and is not intended reasonable effort has been made to ensure the accuracy of Managing Partner of Catalyst Corporate Finance LLP to be comprehensive nor to provide financial, investment, legal, the information contained in this publication, this cannot be tax or other professional advice or services. This publication is guaranteed and neither Mergers Alliance nor any of its member + 44 207 881 2960 not a substitute for such professional advice or services, and it firms or other related entity shall have any liability to any person firstname.lastname@example.org should not be acted on or relied upon or used as a basis for any or entity which relies on the information contained in this investment or other decision or action that may affect you or publication, including incidental or consequential damages your business. Before taking any such decision you should arising from errors of omissions. Any such reliance is solely consult a suitably qualified professional adviser. Whilst at the user’s risk.2 3
Sector Report 2012 Report Highlights We at Mergers Alliance believe the main factors to shape M&A in the cleantech sector over the next three years will be: Sector focus Chinese wind turbine firms are emerging to become highly competitive across the globe thanks to improving technology and lower overheads. It is now home to four of the world’s top ten wind turbine firms. Nonetheless, The “globality” of cleantech Government targets impacting Solar’s future uncertain we expect European turbine players to continue to excel internationally especially in regions such as Latin America cleantech where they can leverage their financial resources and The deployment of technology and capital (both In Europe the solar industry is facing somewhat of a mini-crisis due to increased competition from Asia, industry experience. corporate and institutional) in cleantech has had a Renewable targets are driving cleantech sector distinctly international flavour since the industry’s development. One of the more sweeping initiatives is the overcapacity and a significant reduction in government inception. Nonetheless, there has been a slight EU’s 20-20-20 directive. It mandates a change in energy support. This is especially apparent in Italy, Spain, France reduction in cross-border activity over the past 18 consumption and efficiency habits and for renewables to and Germany. We expect heightened M&A activity as Waste management transforms months which can be largely attributed to ongoing constitute 20% of energy generation by 2020. China’s European companies look to expand their geographical global economic concerns and contracting government reach in an effort to maintain the same growth they have We expect investment flow into the waste management Renewable Energy Law aims for 15% renewable energy support. This trend should reverse as balance sheets become accustomed to domestically. industry to accelerate which should result in a rise in M&A usage by 2020. South Africa, whose domestic cleantech strengthen and as investors start looking for targets in activity. Market optimism in this sector can be attributed industry is currently almost nonexistent, is targeting an M&A in the solar sector was characterised by developing economies with strong macro fundamentals to the increasing attractiveness of vertical integration, ambitious 37% by 2030. Such initiatives will underpin three factors: and robust support mechanisms. We expect interest to legislative and fiscal incentives and the push for ever investment decisions and help ensure deals get stretch beyond the BRIC countries to include nascent rising recycling rates in developed nations. Consolidation completed, even in the face of global economic Overcapacity and market saturation has lead firms, cleantech markets with high-growth potential such as is driving M&A in the more traditional collection and uncertainty. who are looking to lock in higher margins, to focus South Africa and Poland. processing sectors which includes acquiring advanced on improving efficiency, specifically through materials material recycling facilities (MRF’s). Investment is also innovation and light management technologies. being channeled into energy from waste whether Specific policies having direct advanced thermal plants or anaerobic digestion. Countries to capitalise on their affect on M&A A decrease in state support, mostly in Europe, has diminished the business viability of many solar players. comparative advantage Reduced feed-in-tariffs in particular have caused Certain legislative and fiscal policies are directly affecting financial difficulties for smaller firms. There was a Certain cleantech sectors viable Each country will capitalise on their comparative natural the volume of M&A transactions. The National Biodiesel marked increase in major solar firms entering strengths; the UK with offshore wind, South Africa with Program in Brazil, which mandates a 5% biodiesel blend without state support non-EU markets. solar, Sweden with biomass. Equally, countries such as in diesel, has triggered a number of deals, the recently the Netherlands with its water industry and Germany and Cash heavy Asian firms acquiring foreign companies Thanks to reduced costs, innovation and logistical implemented feed-in-tariffs in the UK was the catalyst Japan with their manufacturing capabilities will be looking as they aim to achieve technological internalisation maneuvering, a number of sub-sectors in certain behind some of the most notable transactions in the to entrench and further develop their respective as well as technological parity. countries have emerged to become economically viable UK. Conversely, regressive policies have also been the competitive advantages. without the helping hand of government. These include driving force behind a string of deals; the reductions in wind power in Brazil, re-refining in the USA and the water photovoltaic subsidies in Italy being a good case in point. treatment industry across a number of regions. Wind energy: The surge continues Scope of private equity interest broad We should see a new round of incentives, particularly from countries with healthy current account surpluses, The past 18 months saw a record number of M&A Unlike in many industries, private equity investors have as they attempt to emerge from the renewables arms transactions in wind. Importantly, there was a decline been involved across the whole financing cycle from pre- race endowed with a healthy green portfolio. in the average purchase price of running wind plants. revenue venture finance, through traditional MBO’s, to This was partially due to project developers disposing of investing into large-scale generating assets. It should be their already built wind farms to secure capital to finance noted that there was a slight increase in investments into The impact of Fukushima their future/current wind developments. more mature businesses which have clearer paths to exit. The nuclear renaissance has seemingly slowed as a result Installations grew in all the major markets, albeit at a Our research shows that PE/VC investment in 2010 of the Great East Japan earthquake creating conditions more modest pace compared to 2009. China experienced increased by 19% compared to 2009 and 2011 is set to for the meltdown of nuclear reactors in Fukushima. It is the largest growth (48% of the new total wind installations achieve similar growth numbers. We expect this number clear now that Fukushima has had a substantive effect over the past year took place in China). The UK lead the to continue to increase over the coming years due to the on the policies of both governments and energy way in offshore installations thanks to multi-billion dollar emergence of a growing number of specialist PE funds conglomerates. The biggest news was arguably investments into the sector. We expect Germany and that focus exclusively on cleantech. Interestingly within Germany’s decision to shut down all of its nuclear power China to also emerge as important bastions of offshore PE circles, the definition of cleantech has been plants by 2022. Just weeks after the Japan earthquake wind over the coming years. broadened to include sectors such as water, waste nuclear energy giant EDF bought out the remaining management and industrial process efficiency. shares it does not already own of its renewable energy4 subsidiary EDF Energies Nouvelles; a possible indication 5 that the disaster is influencing corporate decision making.
Sector Report 2012 Country Highlights Mergers Alliance partners highlight some interesting observations. Russia Netherlands Russian energy giants Inter Rao UES and UK Rushydro are expanding their geographical A strong private equity tradition The rise in landfill taxes and recycling reach to include Vietnam, Georgia and Armenia. is manifesting itself in the cleantech targets continues to stimulate M&A industry with a number of firms France activity by overseas and domestic setting aside funds aimed at the buyers in the waste sector. M&A volumes in biomass will renewable segments. China increase as both large strategic buyers and industry newcomers look to capitalise on The government’s decision to repeal the new tax on polluting rates. legislation that required that 70% of the components used to build a wind turbine are domestically produced should encourage fresh foreign investment into the wind sector. Norway USA Norway’s Statoil and France’s Technip have partnered to build large capacity Even without state support the floating wind turbines. Stronger offshore India biofuel re-refining sub-sector has winds should offset increased installation The merchant power market in seen a number of deals take place. and infrastructure costs. India should attract renewable Improving green technology will make Spain firms seeking more flexibility in this space even more attractive. After buying out its renewable arm, their energy generating operations. Iberdrola Renovables SA is expected to move towards diversifying its renewable portfolio, both domestically and abroad. Japan Japan is reassessing its energy Germany Mexico provision, which is still highly dependent International firms have been actively on foreign oil. Japanese corporations are Spanish based firm Iberdrola buying German solar firms. We expect looking to increase their exposure to Renovables SA has been actively this trend to continue as foreign Poland international markets. buying up Mexican wind, lifting its companies seek access to premium Reforms in government legislation total capacity in the country to German technology. will create better conditions in the 106 MW. Polish wind sector, which is expected to grow almost threefold by 2015. Turkey The considerable wind potential in Turkey has yet to be fully realised. The US$1.1bn purchase Brazil of a portfolio of Turkish wind farm power projects Expect to see prominent South Africa by UK based Renewable Energy Systems may Ethanol players Cosan, ETH, prove to be an indicator of things to come. Large renewable energy players Bunge and Guarani to start looking Renewable Energy Systems, Mainstream for global M&A opportunities. Renewable Power and Suntech Power Italy Holdings have entered the South African The auspicious new state market in the past three years. energy efficiency scheme should prove to be highly beneficial for domestic firms.6 7
Deal Focus Capital City: Brasília Area: 8,511,965 sq km Population: 198,739,269 Time zone: GMT -3 Brazil “While consolidation in the including sugarcane residues, wood and charcoal, is predicted to reach 4.3% by 2013. Biomass energy, Market forces drive wind expansion Recent transactions ethanol sector dominated represents around 30% of the country’s energy matrix. A number of the smaller firms that have developed wind Date Target Description Acquirer Deal Value (US$m) cleantech activity over the farms have lacked the balance sheet strength needed Apr 11 Jantus SL Wind farms CPFL 960 M&A activity settling after to obtain long term financing from BNDES (Brazilian past several years, and expansive growth Development Bank), forcing them to sell to larger Apr 11 ERSA Wind / small hydro / biomass CPFL n/d players. Furthermore, the emergence of medium sized with more still to come, M&A independent players has attracted attention from the Mar 11 Cavo Saneamento Waste Management Estre Ambiental 375 M&A activity in the Brazilian cleantech market boomed in transactions involving large wind 2009 and although there was a slight contraction in 2010, larger strategic companies requiring scale to enter Dec 10 ETH Bioenergia Biofuel Petroleo 1760 Brasiliero S the segment. Sep 10 Omega Energia Small Hydro Warburg Pincus 215 total volume and average deal value has remained fairly players are beginning to occur, constant over the past four years. In April 2011 local Even without any tariff subsidies, Brazil has huge Aug 10 Biooleo Industrial Plants Biodiesel and Tarpon Petrobras 10 as independent players become integrated player CPFL Energia acquired financial potential for wind energy usage as capacity factors range Feb 10 Amyris Brasil Celulosic Ethanol Biocombustiveis Stratus 54 investor-backed Jantus SL for US$960m. The deal from 36-55%. Importantly, the 2004 PROINFA subsidies large enough to attract strategic involved four wind farms with a 210 MW wind farm -see inset- are no longer necessary as construction costs Nov 09 Brenco Ethanol ETH Bioenergia n/d acquirers or in order to gain more project andforportfolio of 732 MW energy auctions. CPFL are eligible a participation in the certified projects that have come down to approximately US$2.5m per MW. The fact that the market alone can sustain the Brazilian Oct 09 Santelisa Sugar / Ethanol Louis Dreyfus 630 Bioenergia Commodities scale in the face of challenging is now in talks with ERSA, a large independent player that wind sector has alerted investors looking for viable Aug 09 Energimp Wind Farms CEMIG 115 is backed by various private equity funds and banks. business propositions. IPO prospects.” In the middle market, Brazilian private equity firm Stratus acquired a 40% stake in Amyris Brasil, a unit of Derek Gallo, Broadspan US-based Amyris Biotechnologies for US$54m. Stratus’ Biodiesel: An industry waiting for strategy is to support Amyris’ plans to transform government support Government Support Macro growth driving clean tech M&A sugarcane into renewable feedstock, at an industrial scale, for the domestic production of chemicals by 2014. Despite a spate of recent deals, the biodiesel sector will PROINFA: Brazilian GDP growth remains strong, at 7.4% in 2010 likely remain somewhat stagnant until the government The National Biodiesel Program, which mandates The Incentive Program for Alternative Energy and 4.1% expected for 2011, which has encouraged releases a new regulatory framework elevating the a 5% biodiesel blend in diesel, was the impetus behind a Sources, otherwise known as the PROINFA consolidation and also attracted international strategic minimum share of biodiesel in the diesel blend. number of M&A deals. For example, the merger of Brasil Programme, was promulgated in 2002 to stimulate investors seeking high growth markets. The need for Independent producers might be sold to players Ecodiesel and a Spanish owned agribusiness firm renewable energy generation by providing investment in energy generation to produce this growth with crushing facilities and agricultural operations demonstrated the attraction of a vertically integrated government (through Eletrobras) Power Purchase has attracted foreign operators and investors with to guarantee a steady supply of oil. production model. Petrobras also strengthened its Agreements. experience in the renewable energy sectors. position in the sector with the acquisition of a 50% stake The sector that benefited the most was the wind Relatively high interest rates leave many smaller in a greenfield biodiesel plant. By and large, however, companies vulnerable to larger players endowed with most of the recent M&A activity emanated from the Cross-border opportunities in wind energy sector, which jumped from 22 to 414 MW of installed capacity from 2002 to 2007. both lower costs of capital and the corporate guarantees ethanol sector, accounting for about half of all deals. and ethanol required during construction in project finance structures. Because the programme has been targeted at small Although there are a handful of dedicated private equity independent producers who do not have the The cleantech industry in Brazil has historically been M&A activity and venture capital funds that have invested in recycling, financial strength to secure long term financing from dominated by biofuel, specifically ethanol and more biomass generation, and water treatment, there is still a local development banks, many of the recipients recently a growing biodiesel programme, as well as distinct lack of involvement in the market. The solar have been forced to sell their projects to larger renewable generation which includes hydro and more 16 600 thermal and energy efficiency sub-sectors have still not players therefore stimulating overall M&A activity. recently biomass (e.g. sugar cane cogeneration) and 14 500 fully matured, mainly due to the high cost of capital in onshore wind farms. Hydro represents 68% of installed Average deal value $m 12 Brazil. Wind and ethanol will continue to dominate the Transaction volume capacity and 87% of the electric energy generation in National Biodiesel Program: 400 M&A landscape. the country. 10 The programme requires the mandatory use of a 8 300 biodiesel blend in diesel. It started with a 2% blend Due to their prominence in the ethanol industry look for Renewable energy generation and biofuels are expanding 6 in 2008, which increased to 4% in July 2009 and 200 Brazilian firms such as Cosan, ETH, Guarani or Bunge at a rapid pace, driven by Brazil’s economic growth and then to 5% in January 2010. There are plans to 4 to begin searching for opportunities abroad whilst we the success of government programmes that have 100 reach a 20% mandatory blend in 2020. The 2 also expect to see an inflow of M&A in the Brazilian pushed for the proliferation of biodiesel and wind. programme has been the driver behind a number 0 0 wind space. Although the ethanol sector has experienced a lot of of M&A deals. 2008 2009 2010 H1 2011 consolidation in recent times, the market is still relatively fragmented so expert further consolidation. Wind energy, Total deal volume8 which accounts for 0.5% of the electric generation, 9 Source: Capital IQ, Mergermarket Average deal value $m
Deal Focus Capital City: Mexico City Area: 1,972,550 sq km Population: 111,211,789 Time zone: GMT -6 Mexico “The need for alternative well as the reduced government support in the industry up until recently. The bulk of the deals completed have Large foreign involvement in Recent transactions wind power sources of energy has been in wind power. Date Target Description Acquirer Deal Value (US$m) accelerated in recent In early 2011 Spanish based firm Iberdrola Renovables’ Mexico has the potential to equal, if not surpass Brazil as Apr 11 Eolia Revovables Portfolio of two Wind Farms EDF Energy Mexico (Spain) n/d SA purchased the Mexican Bill Nee Stipa wind farm from the dominant wind player in Latin America. The logistical times due to a reduction Gamsea Corporación Tecnológica. This was Iberdrola demands of such an endeavour will mean progress will be Jan 11 Bill Nee Stipa Wind Farm Wind Energy Iberdrola Renovables n/d SA (Spain) gradual. Nonetheless, in the short term we expect in oil reserves. The government Renvables’s second operational wind farm purchase in Mexico, lifting its overall capacity to 106 MW. The deal escalating government support mechanisms to Oct 10 Repsol Bio-energy KUO (Spain) Joint Venture Jul 10 Baja Aquafarms Sustainable Lions Gate Lighting 17 has been increasingly active in was in line with Iberdrola’s strategy of extending its Latin encourage foreign players. Farming (Canada) American coverage and establishing growth in countries Feb 09 Promotora Recycling Double V Holding 11 supporting the sector through with increasingly favourable regulatory frameworks. In July 2011 Canon Power Group, a US based renewable Ambiental Services SA energy firm, announced its intention to invest US$2.5bn Dec 08 Gamesa Wind Energy Iberdrola Renovables 100 various initiatives, which has In late 2010 Spanish oil and gas giants Repsol joined into the Mexican wind market. The sizable investment will Jul 08 Earth Tech Waste Water SA (Spain) Mitsui & Co 55 comprise of three wind farms located in Zacatecas, Baja attracted foreign companies to forces with one of Mexico’s biggest conglomerates KUO to establish KUOSOL, a company dedicated to the California and Quintana Roo for a combined power Mexican Holdings Treatment (Japan) invest in Mexican cleantech, with production of bio-energy. The new company will be output of 312 MW and will bring total installed wind headquartered in Mexico and its main operations will be capacity in Mexico to over 1 GW. wind power especially favoured.” the industrial scale cultivation of the jatropha plant. It is Siemens made its first foray into the Latin American wind hoped that the biofuel crop will generate 16 MW per year Government Support market by supplying 70 wind turbines to Mexican wind Luis Garcia, Sinergia Capital for consumption. power firm Grupo Soluciones en Energias Renovables. Energy Transition Fund The turbines will be installed in the Tamaulipas region In 2009 the state enacted the Energy Transition of Mexico and will supply over 160 MW. The cost of the Diminishing oil reserves driving M&A activity order totalled US$270m and marked one the largest Fund in an effort to promote green energy start-ups and to help facilitate the flow of capital and cleantech investments by a Mexican firm into the wind energy resources into renewable projects. market to date. 3 90 Mexican GDP grew at 5.5% in 2010, its fastest rate of Over the course of three years, starting in 2009, 80 growth for ten years. A sharp rise in manufacturing was 3bn pesos (US$240m) will have been spent to help Transaction volume Average deal value $m 70 the main attributing factor. Despite fast growth, inflation 2 60 Small-scale moves into solar support the renewable sectors. Although the fund has actually dropped to 3.8%, down from 4.4% in 2010. has so far created more favourable business 50 Growth, however, is putting a strain on energy There has not been much interest in solar to date, parameters, it is questionable whether it has requirements. 40 primarily due to the prohibitively high costs of solar helped boost M&A activity. 1 30 panels relative to other technologies. No major One of the most important macroeconomic drivers of 20 large-scale projects are planned; however companies Fonaga Verde Mexican cleantech in recent years has been Mexico’s 10 such as Abengoa, a Spanish conglomerate with In 2010 in support of sustainability projects and dwindling oil reserves. Oil reserves have fallen nearly 0 0 significant operations in renewable energy, are starting renewable energy, the Mexican government opened 50% since 2000. Although the state has made attempts 2008 2009 2010 H1 2011 to make incremental encroachments into the Mexican up a guarantee fund called Fonaga Verde. to finesse its way out of its reliance on fossil fuels and photovoltaic (PV) space. This is certainly a sub-sector nuclear energy, the renewables industry has been Total deal volume The start-up and operation costs of the fund will be Source: Mergermarket, waiting to be exploited by foreign firms that possess relatively slow to get off the ground. Despite this, industry 200m pesos (US$16m). The fund will have around Capital IQ Average deal value $m lower costs of production, especially considering Mexico analysts look upon Mexico’s cleantech potential with 2.5bn pesos (US$200m) to finance sustainable has the third largest solar potential in the world. great sanguinity. In a regulatory and institutional context, projects in the agriculture, forestry and fishery Mexico is much more favourable to M&A in renewable industries. energy than it was just two years ago. The industry waits for firmer government intervention Spanish interest Although policies, initiatives and subsidies have Total volume in cleantech has been relatively low over progressed over recent years, the state still offers more the past 18 months. Underlying this has been the monetary and legislative support to the fossil fuel monopolised ownership of the electricity sector as industries. The aforementioned dwindling oils reserves should reverse this over time. We expect M&A in cleantech to increase once the synergy between what the market can offer and what the state can offer reaches a10 suitable equilibrium. 11