TODAY’S STUDY: SUN AT MIDSUMMER
Solar Funding and M&A Q2 2012 Report; Funding and merger & acquisition activity for the solar sector
July 2012 (Mercom Capital LLC)
Venture capital (VC) funding in the solar sector was slighly up in Q2 2012 with $376 million in 32 deals compared to $329 million in 34 deals in Q1 2012. With news of solar companies downsizing or going out of business seemingly every day, continued steady VC funding is good news. That said, the average VC deal size has been consistently dropping since 2010 with large VC deals becoming rare.
CIGS and solar lease companies continue to be popular with investors. Top VC deals in Q2 included CIGS company Nanosolar with $70 million and solar lease company SunRun with $60 million. At the end of the first half of 2012, solar downstream companies are slightly ahead in VC funding with $251 million compared to $239 million raised by CIGS companies.
Since 2011, most solar VC investments have gone to thin film companies with $835 million, and with panel prices falling more than 60 percent over the same period, solar downstream companies have been an attractive play. In this quarter we are finally seeing VC investments catch up, with downstream receiving the most funding. Balance-of-system (BOS) companies also represent a significant opportunity for investment, innovation and cost reduction. With the fall in PV prices, BOS is now the largest slice of the solar system pie, but VC investments in BOS have been surprisingly low.
A total of 60 VC and Private Equity (PE) investors participated in 32 deals in Q2, with Crosslink Capital, Kleiner Perkins Caufield and Byers and the International Finance Corporation’s (IFC) VC/PE arm participating in multiple deals.
There were 14 M&A transactions in Q2 2012 totaling $325 million, with only six disclosing transaction amounts. In comparison, Q1 2012 saw 14 M&A transactions totaling almost $5 billion, although $4.7 billion of that was the Solutia acquisition. This quarter, most of the M&A activity were small strategic transactions with a few of them being acquisitions of business divisions for synergistic reasons. Some of the acquisitions were for “sick” companies getting rid of non-strategic businesses and assets. The largest disclosed transaction was the $276 million acquisition of Chinese mono and polycrystalline ingot maker Zhejiang Topoint Photovoltaic by Chinese firm Guangxi Beisheng Pharmaceutical. M&A activity in Q2 2012 involved eight manufacturers, five solar downstream companies and one thin film company.
2011-12 Solar Funding and M&A
There were 13 new cleantech and solar-focused investment funds announced this quarter, commiting a total of $3.2 billion.
We also tracked 13 bankruptcies and insolvencies in Q2, and seven of the 13 were thin film companies. There were 16 companies that announced restructuring and downsizing in this quarter.
Some major bankruptcy announcements included Q-Cells, Abound Solar, Solar Trust of America and Konarka Technologies among others.
VC Funding by Technology
Downstream companies have been the most favored among VC investors in 2012, receiving $251 million in funding so far in 17 deals, followed by thin film companies with $239 million in 11 deals. With solar manufacturing in trouble from overcapacity and price pressures, there is a natural shift toward downstream companies. The solar lease model especially continues to be attractive, led by SolarCity’s $81 million raise in Q1 and SunRun’s $60 million raise this quarter.
The steep fall in module prices have put BOS companies in focus for sometime now as markets look for cost reductions and improved efficiencies. However, VC funding in solar continues to lag when it comes to BOS companies relative to their importance in the solar systems cost structure…