Clean energy M&A market proves active in Q1 2012
Predictions late last year that clean energy M&A would continue to grow in the first quarter of 2012 have proved correct. Several factors have led to further M&A activity, totaling $19.4 billion in the first three months of the year worldwide.
Although global M&A deals in the renewables sector reached record levels last year, 2012 is proving to be even more exciting for the sector. In the first quarter of 2012, the value of clean energy M&A deals was double their value in the first quarter of 2011. The $19.4 billion is also considerably more than the $14.8 billion of deals recorded in the final quarter of 2011.
The first quarter surge in deals can be largely attributed to a rise in the number of large deals, with eight totaling more than $500 million taking place.
There are a number of reasons why businesses around the world are interested in buying up clean energy firms. One of the main reasons is simply the fact that governments are re-evaluating their energy strategies in light of issues like price, public financial constraints, impending emissions reduction agreements and reticence to invest further in nuclear energy. They are turning towards clean energy as a realistic strategy for the generation of power in the future and businesses are catching on to this.
In Europe, the ongoing Eurozone crisis and the massive cuts in public spending, combined with increasing costs for oil and gas users, has led to more interest in renewables.
Meanwhile, in Asia there has been a major increase in takeovers of clean energy firms from around the world. The Asia-Pacific share of worldwide cleantech M&A rose to 18 per cent last year, compared with 13 per cent the year before. So far in 2012, Japan has been leading the way with outbound investment in the industry totaling $2.1 billion and none of its targets were located in Asia. In 2011 clean energy outbound M&A from Japan averaged just $1 billion each quarter.
Market conditions are also leading to a rise in M&A activity, with the solar energy sector going through a period of consolidation and growth, along with wind power. There is no doubt that the renewables industry is maturing and the firms that did not have longevity have started to fall by the wayside, leaving the strongest to join forces and take advantage of the industry growth.
For example, US-based solar firms, Evergreen Solar and Solyndra, both collapsed last year. Solar firms in Europe and Asia are also facing increased pressure along with increased opportunity and those without the necessary financial strength are failing.
Despite these challenges, the markets for renewable energy are rising sharply, according to a recent report from Grant Thornton. It sites Clean Edge figures showing compound annual growth (CAGR) of 39.8 per cent for solar photovoltaics since 2000 and CAGR of 29.7 per cent for wind power over the same period.
The report suggests that businesses are no longer investing in cleantech simply because it is something they should be seen to do. They are now investing to cut costs and take advantage of growth.
Although the sector is still on the up, it has maintained its optimism throughout the economic crisis and could now be enjoying the rewards. Firms that are keen to dip their toe in cleantech waters need to ensure they are aware of risks and undertake thorough due diligence to minimize exposure to these.