For most of this year, mergers and acquisitions have been the dog that did not bark in the clean energy sector. There have been plenty of reasons to expect activity – much lower valuations than in 2007-08, an array of cash-strapped technology firms and developers, and low interest rates for big companies sitting on piles of cash.

However the figures for M&A have been relatively feeble this year. Corporate mergers and acquisitions in the sector totalled USD 2.1bn in the second quarter of 2009, after USD 2.7bn in the first – this compared to USD 21.7bn in the whole of last year.

One reason has been caution. There might have been some cheap takeover targets out there in recent months, but the potential acquirers have been in a risk-averse mood themselves with the financial crisis swirling around them.

Recent days however have brought a few glimmerings of M&A activity, signs perhaps that the rest of this year will see more transactions.

In Brazil, oil colossus Petrobras confirmed that it is in talks with Brenco, one of the top ethanol producers. The former would only say – coyly – that discussions revolve around "identifying possible synergies in the production of biofuels".

The local press has speculated about a full takeover, but a likelier eventuality would seem to be Petrobras taking a stake in Brenco, which was formed in 2007 to invest the Real equivalent of USD 2.4bn in sugar cane processing and ethanol production.

In the emerging but potentially huge market of US carbon, August saw C-Quest Capital, an ambitious investment house founded by industry big name Ken Newcombe, take a significant minority stake in SunOne, a carbon credit aggregator for the US agriculture sector.

More intriguing still, British private equity operator Guy Hands emerged as the buyer, via his firm Terra Firma, of 90% of US project developer Everpower Wind.

The value of the transaction was not disclosed, but Everpower has a 62MW project built and 800MW of "near-term" development assets – so the price is likely to have been several hundred million dollars.

Hands and Terra Firma are best known in the UK for their ownership of EMI, the record label, but have in fact already demonstrated their interest in the clean energy sector via their stewardship of Infinis, the country’s largest renewable-only generator. Infinis has 1GW of installed landfill gas capacity, as well as development assets in wind.

The earlier part of the third quarter of 2009 had already seen plenty of interesting M&A deals. In wind, Daewoo Shipbuilding of Korea bought US turbine maker Dewind for USD 50m and Germanischer Lloyd snapped up wind services firm Garrad Hassan for an estimated USD 100m. There was also Bosch’s purchase of a 40% stake in Germany’s Aleo Solar for USD 66m.

However there has been a lack of big deals, in the hundreds of millions – or billions – of dollars. The only giant transaction foreshadowed for the second half of the year is the possible sale by Italian utility Enel of a minority stake in its Green Power subsidiary for a mooted EUR 3.5bn.

That may take the form of an initial public offering of Enel Green Power shares. But more likely, given the lack of an IPO market this year, Enel could sell the stake directly to institutions – or to a trade buyer.

Source: New Energy Finance [news@newenergyfinance.com]
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