AIMCo Closes Acquisition of Eolia?

Private Capital Journal reports, AIMCo closes acquisition of Eolia Renovables de Inversiones:
Alberta Investment Management Corporation (AIMCo) has completed the acquisition of over 90% ownership in Eolia Renovables de Inversiones, S.C.R., S.A from funds managed by Oaktree Capital Management, L.P., and other minority shareholders. Financial terms of the transaction were not disclosed.

Eolia Renovables de Inversiones was formed in July 2007 from the merger of Eolia Mistral, Eolia Gregal, Preneal and Banco de Sabadell. The company was funded and took on board 157 partners brought in a total of 1,358 MW between farms in operation, under construction or in the final stage. In 2012 Eolia divested a wind farm in Ontario with a power of 30 MW.

In 2016, Oaktree outbid Cerberus and Blackstone to acquire a controlling stake in Eolia, valuing the company at an enterprise value of €1 billion including €700 million debt.

Eolia currently manages a 669 MW portfolio of renewable energy assets with long-term contracted revenues under the Spanish Renewables regulatory regime, and has an attractive pipeline of development opportunities in Spain.

News Release

AIMCo Completes Acquisition of Majority Stake in Eolia

Madrid, Spain (March 5, 2019) – Eolia Renovables de Inversiones, S.C.R., S.A (“Eolia” or the “Company”) today announced that Alberta Investment Management Corporation (“AIMCo”), on behalf of its clients, has completed the acquisition of over 90% ownership in the Company from funds managed by Oaktree Capital Management, L.P. (“Oaktree”), the global alternative investment management firm, and other minority shareholders. Financial terms of the transaction were not disclosed.

Eolia is a leading independent power producer in the Spanish renewable energy sector, engaged in the development, construction and operation of wind farms and solar photovoltaic plants. The Company currently manages a 669 MW portfolio of renewable energy assets with long-term contracted revenues under the Spanish Renewables regulatory regime, and has an attractive pipeline of development opportunities in Spain.

Alejandro Cano, Managing Director at Oaktree, said, “We are very pleased with the progress we have achieved by working with Eolia’s management team over our holding period. We are convinced that Eolia’s platform is now ideally positioned to benefit from the significant growth that is expected in the sector. AIMCo is one of the most highly regarded investors in the world and we are confident that they are the ideal partner for Eolia going forward.”

Cristóbal Rodriguez, Chief Executive Officer of Eolia, said, “We are grateful to Oaktree for their support as we worked together to bring about changes that accelerated the company’s growth and created value for all stakeholders. We look forward to collaborating with AIMCo to continue to develop and strengthen our platform and to capitalize on growth opportunities in the Spanish market.”

“AIMCo is very pleased to become the majority shareholder in Eolia Renovables. The Company’s portfolio of regulated renewable energy assets is highly attractive for AIMCo as a long-term investor,” states Kevin Roseke, Director of Infrastructure Investments and Head of AIMCo’s London Office. “The investment fits well with our investment experience in the renewable energy sector and our ambition to place investments in core geographies in continental Europe. We look forward to working with the management team in the coming years to capitalize on further growth opportunities in the Spanish market.”

AIMCo was advised by RBC Capital Markets, Linklaters and Cuatrecasas.

Oaktree was advised by Cantor Fitzgerald and Perez Llorca.

About Eolia

Eolia Renovables de Inversiones, S.C.R., S.A is a leading independent power producer in the Spanish renewable energy sector and was founded in 2007. Eolia Renovables focuses on the development, construction and operation of onshore wind farms and solar photovoltaic plants. The Company currently has a portfolio of 38 assets with a net attributable capacity of c. 669 MW.

About Alberta Investment Management Corporation

Alberta Investment Management Corporation, AIMCo, is one of Canada’s largest institutional investment managers with more than CAD $108 billion of assets under management, as at December 31, 2018. AIMCo was established on January 1, 2008 with a mandate to provide superior long-term investment results for its clients. AIMCo operates at arms-length from the Government of Alberta and invests globally on behalf of 32 pension, endowment and government funds in the Province of Alberta.

The AIMCo Infrastructure group manages a portfolio of over CAD $8.1 billion in investments, comprised primarily of long-term equity positions in OECD-based infrastructure assets. These assets typically provide essential services to the public, have an operating history, and are either regulated or have highly contracted revenues with the potential for long-term capital appreciation. AIMCo infrastructure investments are intended to match long duration real return asset characteristics with inflation-indexed pension liabilities.

About Oaktree


Oaktree is a leader among global investment managers specializing in alternative investments, with $120 billion in assets under management as of December 31, 2018. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 950 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at http://www.oaktreecapital.com/.
This is a great deal for all parties involved. Let me explain how the deal came about. AIMCo invested in Oaktree's infrastructure fund which invests in renewables and other infrastructure assets (see important update at the end of this comment for details on how this deal came about)

In 2016, Oaktree outbid Cerberus and Blackstone to acquire a controlling stake in Eolia, valuing the company at an enterprise value of €1 billion including €700 million debt.

Oaktree's senior managers worked with Eolia'management on a value creation plan to accelerate growth and after three years, Oaktree decided to sell its stake to AIMCo, most likely through a bidding process where other investors in their fund were invited to bid.

Oaktree is happy because it created value at Eolia and sold this asset fairly quickly (three years turnaround) and AIMCo is happy because it acquired a great asset in a regulated industry where it can collect regulated fees allowing it to better match its long-dated liabilities.

We don't have details on how much AIMCo' s Infrastructure team run by Ben Hawkins paid for this asset but it's safe to assume there was a premium over what Oaktree paid for it. Kevin Roseke, Director of Infrastructure Investments and Head of AIMCo’s London Office was the one who worked closely o this deal.

Unlike Oaktree, however, AIMCo isn't looking to sell this asset any time soon, it's likely going to hang on to it for a very long time to collect a steady yield.

Interestingly, Spain became a global superpower in the wind race over ten years ago. Even back then, Spain's gain from wind power was plain to see:
Years of nurture by the Spanish government have paid off. Spain is a global superpower in the wind race, with 15,000 MW of capacity. The region of Navarra is 70pc green, shielded against gas-shocks, Russian politics and soaring oil prices.

Today's wind turbines are a far cry from the archaic mini-mills that scar the landscape for little return, and provoke such fury in the English shires. They are vast. Each mast can power a neighbourhood.

Here in the wet misty mountains of Asturias, the German power group E.On is erecting a battery of mills that tower 410ft into the sky. They are higher than the dome of St Paul's Cathedral or the US Congress on Capitol Hill. The rotors alone dwarf the wingspan of an Airbus A380 super jumbo.

"We are beyond the boutique phase," said Frank Mastiaux, the head of E.On's green operations. "When this began in the 1970s it was a niche play, a nice tax break for German dentists and doctors. Now it is turning into an industrial business. Productivity has grown by 150 times in 25 years."

Every mill costs €2.6m (£2m) to buy and erect, yet the Danish manufacturer Vestas is sold out until 2010.

E.On is coy about profit margins. The European operations are flirting with break-even cost, but the company's huge 10-mile wind farms in the Texas outback have reached the magical level of €50 per megawatt hour (with US government subsidies), far below natural gas at the current market price.

America is the new Mecca for wind power. The ranchers are fully signed up. They collect an annual royalty of $5,000 to $10,000 for each turbine, and cattle can still graze underneath.

The wind revolution has crept up on us. It is solar power that has seized the popular imagination.

"Everybody loves solar, but in fact solar and wind technology are miles apart," said Dr Mastiaux. "The cost of wind power is €50 to €100 a megawatt hour, while for solar it is still more than €450. The killer for solar is the cost of silicon."

As of 2007, renewable energies produced 242 GW (gigawatts), or 5pc of all global electricity. The mix is wind (93 GW), small hydro (77), biomass (48), geothermal (9.6), solar (8.5), biogas (5.2), and tide power (0.3).

E.On, Europe's biggest privately owned energy company believes all these forms together will quadruple over the next 12 years to 970 GW, led by wind. Dr Mastiaux said: "Renewables will soon be a €200bn business. I can't think of any other industry with growth like that."

The Global Wind Energy Council (GWEC) predicts that wind power will provide almost 29pc of world electricity by 2030.

Yet the International Energy Agency says 3.5pc is more realistic. A report from the UK's Royal Academy of Engineering concluded that wind power still costs two to three times more than nuclear energy, even after decommissioning. The dispute centres on the back-up needs when the wind is not blowing.
That article was written ten years ago, I'd be curious to know what the updated figures are for renewable energy in 2018.

Anyway, there's not a lot more I can add except to note that AIMCo is right to invest in renewables in Spain and even in its own backyard, these are great long-term investments.

Most of the other large Canadian pension funds are doing exactly the same thing, investing predominantly in wind farms across the developed world.

Below, Spain became the first country to use wind power as its primary source of energy back in 2013. That year, energy from wind farms made up 20.9 percent of the power used by the country, with nuclear power in close second providing 20.8 percent.

Now, AIMCo and its beneficiaries will own a piece of Spain's renewable energy market.

Also, with their considerable height and large blades turning almost hypnotically, wind turbines have become an iconic symbol of the planet's shift to renewable sources of energy. In Spain, however, one business is looking to design wind generators that produce renewable energy without blades. That's pretty cool.

Important update: Following my comment, Dénes Németh, AIMCo's Director of Corporate Communication, arranged a phone call with Kevin Roseke, Director of Infrastructure Investments and Head of AIMCo’s London Office.

Kevin was kind enough to share specific insights on this deal:
  • Kevin told me I am right, in a typical deal, LPs invest in a fund and when the fund is winding down, there's a very competitive bidding process which takes place to buy a portfolio company.
  • This wasn't the case here. AIMCo was not an investor in Oaktree's fund. This was a bilateral deal between Oaktree and AIMCo which came about through industry contacts and when AIMCo came as a potential buyer, Oaktree was very pleased. AIMCo's Infrastructure team did its due diligence and decided to go ahead with the acquisition.
  • He added this: "Six years ago, Spain changed its regulation, lowering rates on these assets and it impacted overall demand but once we concluded our due diligence, we were very comfortable with the political and regulatory risks and proceeded with the acquisition."
  • He also said they wanted management to continue having a stake in the company which is why they don't own 100%, management still owns a stake to continue getting good alignment of interests, and that there were no anti-competition issues making AIMCo's platform a perfect fit for this deal to go through.
  • He agreed with me that these are great long-term assets and that the secular trend is to move away from traditional and even nuclear energy and more into renewable energy sources. 
Anyway, after speaking with Kevin, I like this deal more, he's very knowledgeable and it's obvious he really knows his stuff. I thank him for taking the time to speak to me and thank Dénes for setting up this call.


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