A significant increase in the M&A activities is expected in the renewable energy (RE) sector in India , as a wave of consolidation hits the industry, says Ernst & Young’s ‘Renewable Energy in India – The Evolving Dynamics’ report.
According to the report, despite numerous challenges, opportunities in the renewable energy space are attracting various types of developers/investors. Among key emerging players are conventional energy developers looking to diversify into clean energy, large international utilities wishing to participate in the Indian opportunity, private equity-backed renewable energy development companies, and companies with existing renewable energy assets looking to expand their portfolio, among others. All these players are seen to be pursuing both organic and inorganic expansion strategies.
India has seen significant transaction activity with deals worth $2,155 million being announced between January 2005 and July 2009. The average deal size (based on deals with announced value) stood at $69.5 million during the same period. Huge demand-supply gap in power, depletion of fossil fuels and energy security have been the key drivers behind sustained investments in the sector.
The transaction activity is skewed by Suzlon’s acquisition of REPower as this transaction, worth $1,327 million, itself accounts for 61.6% of transaction activity in value. Another significant transaction was Gammon India’s acquisition of a 50% stake in Sofinter for $101 million. Private Equity (PE)/Venture Capital (VC) players have also shown a keen eye and have invested $527 million, 24% of the total transaction value in India.
Wind has the maximum share of approximately 79% of the transactions in the renewable energy space during January 2005 and 21 July 2009. Biomass, hydro, solar and others (having presence in all renewable energy segments) share the remaining part of the pie.
The PE/VC investment accounts for only 24% of total transaction value. However, if the transaction activity is observed in terms of the deal count, they have a substantial share. In fact, 20 of the 37 transactions between January 2005 and 21 July 2009 were by the PE/VC players. These players are chasing up the innovative players while several funds with specific renewable energy mandates have contributed to the transaction activity.
Kuljit Singh, partner and transactions advisory leader for infrastructure, real estate and government, Ernst & Young, says, “In the near time frame, a significant number of assets are expected to change hands with some of the existing project owners refocusing efforts on core areas, raising finances by selling non-core assets and de-leveraging balance sheet in case of assets which are on the balance sheet of the main company etc.”