Dive Brief:
- Canada Pension Plan Investment Board (CPPIB) announced Monday it will purchase Pattern Energy Group in an all-cash transaction that implies an enterprise value of $6.1 billion.
- Pattern Energy is a yieldco, an investment vehicle developed to raise capital for renewable energy projects, and the deal with CPPIB makes them private, ensuring shares will no longer be traded on public exchanges. The company has a portfolio of 28 renewable energy projects and an operating capacity of 4.4 GW spread across three countries.
- Shares of Pattern Energy, and yieldcos broadly, have suffered in recent years but experts say their assets remain low-risk investments.
Dive Insight:
Shares of Pattern Energy have been moving up since the company developed a 2018 plan to spur growth. At times, as its share price sank in 2017, Pattern Energy's dividend rose as high as 10%.
"Over the years, Pattern Energy has been able to provide shareholders with a consistent dividend and now our shareholders can realize the value embedded in the company," Pattern CEO Mike Garland said in a statement. "We believe the proposed transaction reflects the strength of the platform we have built."
CPPIB will acquire Pattern for $26.75/share, which the company said represents a premium of roughly 15% over the share price on Aug. 9, when rumors of a possible acquisition sent the stock higher. The transaction includes net debt. Pattern priced its IPO at $22 when it went public in 2013.
Simultaneously, CPPIB and Riverstone Holdings agreed to combine under common ownership Pattern Energy Group and the separate private entity, Pattern Development, which develops renewable energy and transmission assets, under common ownership.
Pattern Energy says its wind and solar power facilities generate "stable long-term cash flows in attractive markets" that will allow it to continue growing. Pattern Development has rolled out more than 4,000 MW of wind and solar power projects.
The two companies will share leadership while remaining structurally separate, according to Pattern Development.
The deal is a reflection of renewable energy's relatively low risk factor - at least once the projects are operating, according to Raj Prabhu, CEO and co-founder of Mercom Capital Group.
"It's a good thing for the renewables sector," he told Utility Dive. "Investors have not been very keen on these companies with the yieldco model."
Some of that is the result of SunEdison's bankruptcy in 2016, which led to questions of the viability of yieldcos. The renewable developer created yieldcos TerraForm Power and TerraForm Global in 2015 but shares quickly declined. SunEdison emerged from bankruptcy in 2018, but had been forced to sell the yieldcos.
"Lately, investment firms are looking at [yieldcos] and going, 'you know, they have pretty good assets,'" said Prabhu.
The assets are staid and in some cases the shares have traded below public IPO prices, he said. In 2017, Pattern Energy traded around $17/share but subsequently recovered.
"These are really not that risky. The risk in the solar industry is in the development phase," Prabhu said The yieldcos "are attractive to these big funds and they see them as undervalued assets. They're going and grabbing them."
