Friday, February 12, 2010

Solar Energy: Deals, Mergers and Acquisitions

In January of last year, The Green Market published its solar stock picks and predicted strong growth in renewable and energy efficiency stock. On October 27, 2008 The Green Market predicted the shakeup of the solar industry and the demise of some players.

According to an article in Environmental Leader, in 2009, energy efficiency (including renewable energy) posted the most growth in mergers and acquisition activity. Rising from $164 million in deals to $1.258 billion in 2009, the US energy efficiency sector grew 664 percent.

In the energy efficiency sector, only the wind power industry has a higher dollar value than solar. There were $3.0 billion in wind energy deals in 2009, up 51 percent from $2.0 billion in 2008. That compares to $1.8 billion in solar merger and acquisition activity in 2009, down 46 percent from $3.4 billion in 2008.

Although all of The Green Market's five sustainable stock portfolios advanced, deals in green industries fell 4 percent, from $9.9 billion in 2008 to $9.5 billion in 2009.

On March 6, 2009, as stock values plummeted early in the year, The Green Market indicated that lower prices "present a significant opportunity over the long term. Investor timing should focus on seeking evidence of hitting bottom. On average, recessions last less than a year, but the market will improve months before the economy picks up. The best time to get the best yield is at the midpoint of the recession."

The Green Market cautioned investors not to give in to fears due to price volatility, explaining this volatility in the solar sector as a "reaction to uncertainty rather than a reflection of a change in companies’ fundamentals. Market prices are being set by emotional investors, many of whom do not know the first thing about stock market valuation. Eventually real values will permeate the current fog of uncertainty. Despite current volatility, over longer time frames, the stock market has proven to be very predictable, almost consistently trending upwards over those periods."

In 2009, despite the recession and the credit crunch, The Green Market's solar stock provided returns of over 60 percent.

In February of last year, Israeli company BrightSource Energy and American company Southern California Edison (SCE) made history with the announcement of the world's largest solar energy deal.

In October, solar third-party financier SunEdison was acquired by MEMC Electronic Materials (MEMC) for $200 million. They are producers of wafers for semiconductors and solar cell devices. With a strong balance sheet and low valuations, MEMC looks good for 2010.

Around the same time last year, we saw the first IPO in the sector in more than a year from STR Holdings. STR is a Connecticut-based firm, which makes parts for solar modules.

On October 15, 2009, Siemens (SI) expanded its solar thermal portfolio with the acquisition of Israel-based Solel for $418 million. Siemens also acquired a 28 percent stake in Archimedes Solar Energy in March 2009. Robert Mansley, who heads Credit Suisse's European renewables practice, which acted as financial advisor to Solel and Ecofin, said: "It's a very interesting deal because we are now seeing large industrials like Siemens increasing their exposure to renewable energy. They have the strategic vision to be able to make significant acquisitions in the sector and create value."

Yesterday February 11, 2010, FirstEnergy Corp. (NYSE: FE) indicated that it will buy Allegheny Energy (NYSE: AYE) in an all-stock deal that values the smaller power producer at $8.5 billion (including debt). ReneSola (NYSE: SOL), a manufacturer of solar wafers and solar modules (panels), will over the next three years sell 600 megawatts‘ worth of their product to an unnamed buyer.

Also yesterday, SunPower announced that it has signed an agreement to acquire SunRay Renewable Energy. SunRay is a leading European solar power plant developer with a project pipeline of more than 1,200 megawatts (MW) in different stages of development. On May 5, 2009, The Green Market article SunPower News: Share Offering and Convertible Debentures, anticipated SunPower's acquisition.

In a press release, Howard Wenger, president of SunPower’s utilities and power plants business group, commented on the purchase: “SunRay has a proven track record of developing bankable solar power plants in a complex environment. This acquisition is consistent with our long-term company strategy to develop a strong brand and complementary channels to market. SunRay’s exceptional team and pipeline will add to our significant internal investment in North American power plant development. It also complements our European engineering, procurement and construction business that serves a broad range of development partners.”

SunPower is paying approximately $277 million for the acquisition, including $235 million in cash and $42 million in a letter of credit and promissory notes. SunPower will be able to use existing cash to complete the acquisition without raising equity capital. The transaction should be completed in the first half of this year.

Despite being a solar leader, SunPower (SPWRA) did not perform well in 2009. Proving that rising tides do not always float all boats. The acquisition of SunRay may signal a brighter future for SunPower and its investors.

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1 comment:

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