TODAY’S STUDY: WIND WHEELING AND DEALING WAS UP AND DOWN IN Q3

Wind Funding and Merger and Acquisition for the wind sector, Q3 2012 Report

October 2012 (Mercom Capital Group)

Introduction

Venture Capital (VC) funding in the third quarter of 2012 amounted to $57 million in six deals compared to a weak second quarter where $17 million went into three deals. Disclosed VC deals this quarter included $21.5 million raised by Mainstream Renewable Power and $15.3 million raised by Trishe Developers—both wind project developers. Announced large-scale project funding in Q3 2012 totaled $1.1 billion in 11 deals, all going to onshore projects.

Top large-scale project funding deals announced in the third quarter included $350 million raised by Nareva Renouvelables and Kharabel FZE for its 300 MW Tarfaya Wind Project in Morocco, $165 million raised by Alto Holding for its 120 MW Karaburun Wind Farm in Turkey, and $141 million raised by NuPower Renewables for its 150 MW onshore wind farm in India. Other top deals were $86 million raised by InfraVest and wpd for its 53 MW Tongyuan Wind Project in Taiwan and the $85 million loan to Newcom for its 50 MW Salkhit Wind Farm in Mongolia. Out of 18 large-scale project funding investors, only KfW IPEX-Bank was involved in multiple deals in Q3 2012. KfW IPEX-Bank was also involved in multiple deals in Q2 2012.

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Corporate Merger and Acquisition (M&A) activity in Q3 2012 amounted to $53 million in 11 transactions compared to $93 million in five transactions in Q2 2012. Disclosed M&A transactions this quarter were the $33.2 million acquisition of Shear Wind, a company engaged in the exploration and development of wind energy properties in Canada by Sprott Power Corp, and the $20 million purchase of certain assets of Otter Tail Corporation’s DMI Industries, a manufacturer of wind towers, by Trinity Industries.

There were 17 project M&As announced in Q3 2012 amounting to $407 million in three disclosed transactions. Disclosed M&A transactions were the $102 million acquisition of three wind farms totaling 102 MW (Scout Moor; Tir Mostyn and Bagmoor Wind farms) by Munich Re from private equity group HG Capital and Peel Energy, the $30 million acquisition of the 27 MW Montfort Wind Farm by Wisconsin Energy Corp and the $11 million acquisition of Polish Energy Partners’ wind farm by Energa.

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There were four debt funding deals announced in Q3 2012 totaling $359 million. Suzlon Energy raised $281 million in short-term loans to repay holders of its foreign convertible bonds, signing an 18 month loan facility with 11 lenders. Mainstream Renewable Power secured a credit facility of $51 million from Macquarie Group. Broad Wind Energy closed on a $20 million credit facility with AloStar Business Credit and Wind Power Energia received a $7 million loan from Inter-American Investment Corporation.

The wind sector is in a very uncertain period with the top wind markets facing policy uncertainty. Installations in China are plagued by grid connectivity issues as newly-installed wind capacity is having a tough time getting connected to the grid while the upcoming expiration of production tax credits at the end of 2012 is a significant threat to the U.S. market, especially if the Republican party wins the upcoming elections. In Europe, Germany is also facing grid connectivity and stability issues causing delays. In India, the accelerated depreciation program, which was the primary driver of its wind sector, has expired. Funding and M&A activity will consequently see a slowdown in the coming quarters.

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VC Funding

In Q3 2012, VC funding in the wind sector totaled $57 million in six deals compared to $17 million in three deals in Q2 2012, and $284 million in seven deals in Q3 2011.

Large Scale Project Funding

Announced large-scale project funding in Q3 2012 amounted to $1.1 billion in 11 deals compared to $5.4 billion from 23 deals in Q2 2012.

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Top 5 Large Scale Project Funding Deals

Top large-scale project funding deals announced in the third quarter included $350 million raised by Nareva Renouvelables and Kharabel FZE for its 300 MW Tarfaya Wind Project in Morocco; $165 million raised by Alto Holding for its 120 MW Karaburun Wind Farm; and $141 million raised by NuPower Renewables for its 150 MW onshore wind farm. Other top deals were $86 million raised by InfraVest and wpd for the 53 MW Tongyuan Wind project and an $85 million loan raised by Newcom for its 50 MW Salkhit Wind Farm.

Other Types of Funding

Equity investment was the only other type of funding deal amounting to $24.5 million in Q3 2012, compared to $13 million in two deals in Q2 2012.

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Mergers and Acquisitions (M&A)

M&A activity in Q3 2012 amounted to $53 million in 11 transactions compared to $93 million in five transactions in Q2 2012. Only two transactions disclosed details.

M&A Activity Breakdown

Of the 11 M&A transactions in Q3 2012, wind downstream companies accounted for four transactions, wind components companies accounted for three transactions followed by manufacturer and service providers with two deals each.

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Disclosed M&A Transactions

There were 11 corporate M&A transactions in Q3 2012 of which only two disclosed details.

Disclosed M&A transactions were the $33.2 million acquisition of Shear Wind, a Canadian wind developer, by Sprott Power Corp, and the $20 million purchase of certain assets of Otter Tail Corporation’s DMI Industries by Trinity Industries.

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Project M&A

There were 17 project M&As announced in Q3 2012 amounting to $407 million in three disclosed transactions.

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