Sector support to help spur venture capital, corporate and private investment activity: PwC

Despite an all-time high in M&A deal volume in the renewable energy sector around the world, Canada is poorly represented, according to a report from PwC. Transaction growth in the industry has largely occurred outside of North America, favouring companies in Europe and Asia. In 2010, a total of 321 renewable energy transactions have been announced to date internationally.

Canada’s share of the deal activity in North America has decreased. In 2010, only 22% of deals had a Canadian target, compared to 34% in 2009 and 30% in 2008. This is far below the average for the energy and mining sectors where global deals with a Canadian target average 10% to 20 % higher.

Three-quarters of the deal activity to date is from wind, solar and hydro targets with biofuel, diversified and other renewable energy targets representing the remaining 25%. Hydro deal volumes are the highest, 18% higher than in 2009 while solar deal volumes are 16% higher. Wind deal volumes are 50% lower than 2009, but part of this can be explained by regulatory incentives which prompted a one-off flurry of deal making last year, the report says.

“While the numbers show that Canada has not been as active compared to other countries lately, our market is ready for a significant change of events in global renewable deal making, says Kristian Knibutat, National Deals Leader for PwC.

“Our public equity markets are recognized as global centres for equity financing and our government subsidies and support have been trailblazing in North America,” adds Carla Eisnor, PwC Deals Partner.

The report (http://www.pwc.com/ca/WindDeals) identifies six reasons why Canadians will be at the forefront of global energy deal making going forward.

Continued aggressive Canadian regulation will spur domestic venture capital and private investment activity. Government subsidies and sector support provide clarity on a renewable energy project’s economic return. This, in turn, tends to spur venture capital, corporate and private investment activity.

Sector maturation combined with limited access to project finance will fuel horizontal and vertical consolidation. The Canadian sector is ripe for consolidation. Many projects are approaching maturation and are ready for construction. However, junior developers will continue to find it challenging to access project finance for development, leading to more M&A in the sector.

Canadian corporate social responsibility frameworks will prompt a flurry of investments and mergers to meet corporate demand for clean energy. Across Canada, several major corporations such as Loblaw and IKEA announced plans to install solar panels on some of their stores. Renewable energy production capacity will have to ramp up to meet increasing demand from corporate Canada.

Inflation indexed yields offered by renewable projects will attract institutional capital. In today’s investment climate, funds are increasingly seeking out investments that can provide inflation indexed long-term yields. As a result, we expect that projects subsidized by the Canadian government, which effectively are guaranteed annuities indexed to inflation, will be highly attractive targets for institutional and pension funds.

Long term growth opportunities in the renewable sector will incentivize utilities and oil and gas players to make opportunistic Canadian buys. Consider that renewable sources currently provide only a fraction of global energy needs, long term growth opportunities in the sector are compelling. This should prompt traditional oil and gas players to diversify into renewable.

Emerging market growth to incentivize Canadians to “look past the U.S. border.” Brazil, China and India are among the fastest growing regions in the renewable energy sector. To help meet demand in a sustainable fashion, governments in each of these nations are implementing numerous feed-in-tariff and other subsidy programs.

The future of the Canadian renewable sector does indeed look bright,” writes Knibutat. “With the right long-term policies and continued access to capital, our nation is set to be a cornerstone of one of the most critical global sectors of the millennium.”

PwC deal data includes announced M&A transactions involving at least one Canadian entity and the source of all our data is Capital IQ. The full report (http://www.pwc.com/ca/WindDeals) including graphs and detailed analysis is available from the contacts above. Go to this url to subscribe to the bi-weekly capital market series: www.pwc.com/ca/QuarterlyDeals 

Methodology Notes:
In this report, a “Canadian” deal refers to an M&A or spinoff transaction involving at least a Canadian entity as a target.
Deal statistics may include cancelled transactions.

In the case of hostile or competing bids, more than one announcement for the same target may be included in statistics.  Our methodology includes these announcements as we consider them to be a proxy for the state of the M&A market.

About PwC’s Deal Team

PwC’s Deal Team (www.pwc.com/ca/deals) helps clients to achieve deal success—from concept to close and beyond. As part of the world’s largest Transaction Advisory practice1, and with our global Corporate Finance group being 2010 Upper Mid Market M&A Advisor of the Year2, the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.


PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See http://www.pwc.com/ for more information. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,300 partners and staff in offices across the country.

“PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.


1 Source: Kennedy;”Business Advisory Services Marketplace 2009-2011″ ©BNA Subsidiaries, LLC. Reproduced under license.

2 Source: Acquisitions Monthly Awards 2010


“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 

For further information:

David Rowney, PwC
Tel: 416 365 8858; cell: 905-299-6282
email: [email protected] 

OR:
Kiran Chauhan, PwC
Tel: 416 947 8983
email: [email protected]