Alterra Power MGMXD

M & A in the green energy space

[materialsgirl]

As BoldForbes outlined, there seems to be certainty that there will be numerous acquisitions in the road ahead.

As I see it, just like in mining, it takes a long time from identifying a good property to production.  In mining, it is 11 to 15 years and often 25 years if there is strong local resistance.   Green energy projects take a lesser time on average;   maybe only 3 years for wind and solar and 6 to 8 years for geothermal and run of river projects.  Still, that is a long time for a company in a hurry.

So, acquisitions provide a much faster way.to grow  The question then arises of who buys and who sells. out
Generally, a larger company buys a smaller one but it is not always that way.  The other big variable is whether a takeover is done with cash or with shares.   Usually in the green space it will be with shares unless the acquirer is a huge company such as Enbridge. 

This means that an acquirer is in a good state if their share price is at a premium to competitors.
After all, all justifications for buying a competitor include the notation that the purchase will be accretive within a year or so on a per share basis.

For illustration let us say that a share price is at a 25% discount to NAV in a segment where competitors sell at 100% of NAV.   If this company offers a 25% premium to a rival and uses their own shares then the acquisition will not be accretive typically.  They could be paying close to a 50% premium when ,measured on a NAV basis.


Therefore, the  likely buyers will have 2 attributes

1  be larger than the one being acquired
2  have a share price that is premium prices versus the industry

Due to how beaten up AXY is it will not be buying any other company.  On the other hand, it is a sitting duck to be taken out.

Ross Beaty is a rational man and has never seen any company as his pet rabbit.  So, at the right price he will sell I am sure.

mat