Corporate M&A in Q1: Who's been buying and selling?

The first three months of 2019 have been dense with interesting corporate M&A deals.

Some juicy examples include Shell’s investment-led growth strategy in the renewable energy sector; Enel’s acquisition of Tradewind, including the sale of its solar and storage unit Savion to Macquarie’s Green Investment Group; and reports that Vestas eyeing a bid for a majority stake at troubled Suzlon. For an overview of the quarter’s key deals, see the table below.

In addition to these, US utility American Electric Power has agreed to acquire the renewable energy unit of San Diego-based infrastructure company Sempra Energy in a $1bn deal.

We will discuss corporate M&A in the North American wind market at our Financing Wind North America conference in Denver next week. You can book your last-minute place here.

Why is AEP's $1bn Sempra transaction significant?

With the acquisition of Sempra Renewables, AEP is set to add to its portfolio 724MW of operating wind energy and battery assets.

This $1bn transaction includes $551m in cash, $343m in existing project debt and $162m in tax equity obligation. The takeover is set to be finalised in the second half of 2019. After the demise of the 2GW Wind Catcher project last July, it is good to see that the US utility’s plans to expand in the wind sector are still moving forward.

The deal fits into a $33bn five-year investment strategy that the utility unveiled four months after the utility had to scrap plans for its $4.5bn Wind Catcher project.

This strategy includes $25bn in transmission and distribution assets and $2.7bn in new renewable energy generation, including wind farms. The investment plan would help AEP to reach its goal of adding 8.3GW of renewables projects, of which 4.4GW of wind farms. This would represent a giant leap from its current renewables installed capacity of 578MW.

In fact, renewables currently account for only 14% of AEP’s generating capacity, while coal-fuelled power plants represent 47% of its energy production, natural gas is 28% and nuclear is 7%. The remaining 4% is made up of energy efficiency projects.

That's why the deal makes sense for AEP, but what's the appeal of the sale for Sempra? Well, while AEP is looking to expand its presence in the renewable energy market, renewables are no longer of interest for Sempra Energy.

This is because Sempra underwent a strategic review last year and, as a result of that, it is now planning to focus on its domestic natural gas and distribution businesses.

In fact, some of Sempra’s investors suggested a review of its portfolio, following the $9.4bn acquisition of 80% of transmission company Oncor last year. The transaction considerably increased Sempra’s debt load, affecting the company’s performance in the short term and triggering the sale of its wind assets.

As AEP keeps pursuing its ambitious wind targets, the deal with Sempra could be only the beginning of an acquisition-led strategy. After all the trouble the utility went through to push forward its plans to build Wind Catcher, we wouldn’t be surprised if it now takes a smoother road. We'll also be discussing travails with transmission at Financing Wind North America.

This would fit into the trend of acquisition-led growth that many utilities and other institutional investors are pursuing in the US, and AEP has resources and appetite to support such a strategy. To grow in a competitive market, corporate M&A is still a compelling proposition.