For Berkeley Energy’s latest Africa renewable energy fund, seven development finance institutions have committed €130m at sum.

According to Berkeley Energy, Africa Renewable Energy Fund II (AREF II) fund’s investor base includes CDP, CDC, FMO, Proparco, Swedfund, Sustainable Energy Fund for Africa and the Clean Technology Fund, part of the Climate Investment Funds.

AREF II has an ultimate target fund size of €300m. It will primarily target run-of-river hydro, wind and solar projects.

In addition, battery storage opportunities, across sub-Saharan Africa, excluding South Africa are considerable

Luka Buljan, managing director of Berkeley Energy, said: “The successful first close of AREF II sends a clear sign of confidence that our hands-on, asset-first, technically orientated approach resonates with our investors and makes a material difference for the communities in which we operate.

“Our track record of delivering projects and strong investment returns means we are well placed to serve Sub Saharan Africa’s growing demand for clean, affordable and reliable energy.”

AREF II follows the full deployment of the predecessor Africa Renewable Energy Fund, which invested in hydro, geothermal and solar projects in Sub Saharan Africa.

“I have never cared what something costs; I care what it’s worth,” says Ari Emanuel, co-CEO of William Morris Endeavor. 

M&A, which is one of the great aspects of the corporate finance world, is driven from creating more value as two separate companies together, compared to being on an individual stand. So to begin with, a successful acquirer should check the target firm’s profitability, growth rate, along with many other factors. 

According to J&P Morgan’s 2020 Global M&A Outlook, while 2018 was the year of megadeals, due to challenging regulatory environment and geopolitical uncertainty, the global M&A market slowed in 2019. Despite declines in announced M&A activity, strategic dialogue remained strong as companies continued to use M&A to strengthen their businesses.

Unfortunately, with an unprecendented period of 2020 and COVID19 pandemic, all the past data and M&A avtivity has been put to a stand. Inthese days, after the first shocks and affect, M&A market will be making a new pathway forward. 

As for the Turkey M&A market, according to Deloitte’s Annual Turkish M&A Review 2019, it is believed to be the poorest year since 2009. Total M&A deal volume in 2019 was around US$5.3 billion through 233 transactions, indicating a year-over-year decline of 56% and 9% in terms of deal volume and deal number, respectively. 2019 was characterized by a lack of big-ticket transactions and the lowest average deal size in the last decade. Despite delivering one of the weakest volumes historically, the total deal number was lifted to the past ten-year average by numerous early-stage M&As backed by venture capital firms and angel investors, making up 30% of the total annual deal number. Similarly as outlined above COVID19 pandemic will have further affects in the Turkish M&A market and related financings. 

Although the M&A market is on the downtrend, renewable energy is still at the top of mind for a variety of stakeholders, including strategic investors, financial sponsors, corporations, and governments. And M&A activity in renewables has been growing due to the demand for renewable energy. The global areas of M&A activity such as the acquisition of start-up companies developing emerging technologies for use in, or in connection with, renewable energy projects, acquisitions involving regional consolidation of energy services, and acquisitions of renewable energy services providers are increasingly attractive. As new technologies become more cost-effective and consumers continue to expect and demand more in the way of sustainability initiatives, strategic and financial buyers alike are still finding renewable energy projects and services to be attractive investments. Renewable energy projects remain also an important area for the Turkish Market.

While speaking of M&A trends, analyzing success and process, we should also consider that the sectoral develeopment, energy market state and funding sources create a difference between regions. As an example, while M&A activity in renewables is being driven by traditional energy businesses scrambling to acquire new capabilities and institutional investors looking for stable and predictable returns, in Turkey existing local players in the energy market drive M&A activity through value-driven purchases.

According to EY Power Transactions and Trends Q1 2019 report, clean energy deals continue to dominate the M&A universe, making up 56% of deal volume and 61% of deal value in Q1 2019.

Looking at the recent valuations and deals where Profistance Advisory is in discussions we can fairly say that the Turkish market has been reaching valuations around 12 EV/EBITDA for the renewables assets, that is further a question one being over-priced. 

The Renewable M&A valuations, in general, are affected by, electricity price – regulated or market, the risk premium for the discount rate and all the detail drivers for EBITDA accumulation. After the COVID19 we have seen 2 general lines in the Turkish market, one being the increase in risk premiums and the COVID19 effect to discount rates, secondly due to the global stop in all different sectors, the renewable energy with a stable YEKDEM price, caused investors to receive a well-generated cash flow. The changes in valuations have been transferred to the M&A discussions in the market, with sellers asking for a Premium on their sales prices before the COVI19 pandemic. The main risk issue is still seen as the price risk, with YEKDEM scheme under re-consideration in terms of methodology, currency and applicability along with the transformational changes in market energy prices to be modelled after COVID19

As before COVID19 the expectations and prospects and valuations have been positive, the COVID19 affected the deal volume and financial closes but not the long-term prospect of the market. Before COVID19 and its devastating effects, the M&A market was believed to continue its strength and competitive manner. Along with financial markets struggling due to COVID19 originating uncertainty and increased risk; re-evaluations, cancellations, postponements are rapidly increasing. Although we don’t know how much more time COVID19 will affect the sectors, and probably analyze and due diligence process will change, we believe that with renegotiations and goodwill, M&A deals can still be on track.

Increasing investment trend for Renewable Energy before COVID19 is to be believed to continue according to industry players. While banks are sounding negative, with little delay investors and advisors say they are positive to the sector just as before COVID19. Well-capitalized developers seem to access the funds they need as easily as before, reflecting strong demand for renewables assets. Last but not least, we also believe that the global increase in liquidity will create a room for opportunistic M&As with renewables having a positive outlook. In this prospect, it is important for investors to tap these opportunities, with suitable advisory companies, that are not only expert in renewables, energy market, technical due diligence, but also in financial arrangements, financing/funding of M&As and financial modelling for Renewable Assets both with conventional rule based models and machnine learning capabilities.

Footnotes:

1. https://www.jpmorgan.com/jpmpdf/1320748081210.pdf

2. https://www2.deloitte.com/tr/en/pages/mergers-and-acquisitions/articles/annual-turkish-ma-2019.html

3. https://www.ey.com/en_gl/power-utilities/how-demand-for-renewables-drives-m-a-activity

Authors

Özlem KILDIR
CEO
Profinstance
ozlem.kildir@profinstance.com

Sinem SIN OKUR
Project Finance Manager
Profinstance
sinem.sinokur@profinstance.com

Turkey has experienced a significant development in renewable energy installed capacity during the last decade. However, there has been no renewable energy capacity addition with the new auction scheme namely Renewable Energy Resource Areas (‘RERA’ or ‘YEKA’). Accessing financial sources is a key to successful development of new renewable energy capacities. Performing a comparative study on global auction-based renewable energy development & Turkey case, the article proves to point out some reasons for non-bankability supported by a survey study with sector professionals. 

Looking into the global auction-based renewable energy source development; in the 2017-2018 period, around 50 countries used auctions to procure renewables-based electricity, raising the number of countries that have ever held an auction for renewables to 100 by 2019 (REN21, 2004 – 2019). Almost half of the 50 countries had no previous experience with auctions (herein referred to as newcomers); they were likely driven by the reported success of auctions in other markets in attaining low prices. The use of auctions continues to rise, owing chiefly to their ability to reveal competitive prices and the flexibility in their design and their susceptibility to be tailored to fit country-specific conditions and objectives.

Please click here to read more: https://view.publitas.com/p222-1755/ruzgar-enerjisi-dergisi-sayi-29-eylul-ekim-2019/page/52-53