One Week, Three YieldCo Deals. Are More Buyouts On The Horizon?

It’s been a busy several days in the YieldCo space.

On February 5, 8point3 Energy Partners (Nasdaq:CAFDannounced an agreement to be acquired by an infrastructure investment fund managed by Capital Dynamics. While I was still writing an article on why the sale price was at a virtually unheard of discount relative to the stock market price, two more YieldCo deals were announced: NRG Energy (NYSE:NRG) agreed to sell its sponsorship stake in NRG Yield (NYSE:NYLD and NYSE:NYLD-A) to Global Infrastructure Partners, and YieldCo TerraForm Power (Nasdaq:TERP) made an offer to buy out Spanish YieldCo Saeta Yield (Madrid:SAY) at a 20 percent premium. In an interesting twist, Global Infrastructure Partners owns 24 percent of Saeta Yield.

Last week’s flurry of activity caps a very active five months of YieldCo buyouts. Brookfield Asset Management (NYSE:BAM) completed the acquisition of SunEdison’s stake and half of the public shares in TerraForm Power on October 17, 2017. And it acquired all of TerraForm Global on December 29. In both cases, public shareholders received a premium over the share price before the deal was announced. On November 1, Algonquin Power & Utilities (NYSE:AQNannounced the purchase of Abengoa’s sponsorship stake in Atlantica Yield (NYSE:AY)

All of these deals are an outgrowth of the bursting the 2015 YieldCo bubble. YieldCos 8point3, Terraform Global and Saeta Yield were formed in the final months before the bubble burst, and so never had time to grow to a sustainable size while stock market money was still cheap. Now they’re being bought by larger YieldCos that had more time to grow, and are seeking greater scale to better manage the cost of being public companies.

More buyouts on the horizon?

The reason public YieldCos exist in the first place is to finance clean energy projects with cheap stock market capital sourced from a wide pool of investors. Historically, stock market capital has been significantly cheaper than the private capital deployed by infrastructure funds like Capital Dynamics and Global Infrastructure Partners. With the notable exception of NextEra Energy Partners (NEP), YieldCos’ stock prices have been so low (and the capital they raise consequently so expensive) that they have had trouble bidding against private infrastructure funds to buy solar and wind farms.

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Disclosure: Long PEGI, NYLD/A, AY, TERP, BEP, AQN, RNW. Short NEP Puts (a net long position) and Short CAFD calls (net short).

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