Industries – Energy New

ENERGY

The energy industry is undergoing a change. The traditional business model of most energy suppliers has been severely affected by the tightened market conditions, changes in the regulatory framework and the technological progress. The transformation of the sector is observable in various financial aspects and in particular in the increased transaction activities.

YOUR CONTACT PERSON

Markus Varga
Partner
markus.varga@ifbc.ch

CURRENT TOPICS & CHALLENGES

Innovation and digitization

Energy supply is becoming increasingly decentralized and complex. Energy supply companies are meeting these challenges by driving innovation through digitization. The primary aim of digitization efforts is to establish fast, efficient, and automated processes. The energy sector is intensively addressing the topics of Internet of Things, breaking down industry boundaries and increasing innovation through cultural change. An example of this is the founding of Evolution AG by 6 utility companies.

Lack of investment opportunities

The investment priorities of energy supply companies and the targeted decarbonization lead to a concentrated demand for renewable energy projects. This situation is intensified by the lively investment activities of financial investors. Due to the limited investment opportunities and the small number of attractive projects, domestic prices are rising sharply. Accordingly, a large amount of funds continues to flow into investment projects abroad.

Regulation Radar

With the amendment of the Electricity Supply Act, the Federal Council wants to open the electricity market for all customers and, by revising the Energy Act, further improve the investment incentives for renewable energies and secure the supply of electricity. The federal government is currently developing a long-term climate strategy to achieve the climate target for 2050 (net emission reduction to zero), which should also consider the role of negative emission technologies. The gas sector is to receive legal regulation in the Gas Supply Act, which provides for partial market opening.

NOTABLE RECENT TRANSACTIONS

Squeeze-out merger at Alpiq Holding

In June 2020, the three majority shareholders Schweizerische Kraftwerkbeteiligungs-AG, EOS Holding SA and the consortium of Swiss minority shareholders achieved a 90.41% stake in Alpiq Holding AG. Thus, the conditions for a squeeze-out merger were fulfilled and the merger was successfully completed after approval by the Annual General Meeting. Two shareholders have each filed compensation review proceedings against the squeeze-out merger.

BKW acquires Sigren Engineering

Confirming the trend towards innovation and digitization, in October 2020 BKW acquired Sigren Engineering AG, based in Winterthur. Sigren Engineering is a leading actor in the growth areas of smart buildings and smart infrastructure. Through the acquisition, BKW Building Solutions strengthens its expertise in the automation of buildings and infrastructure.

ewz takes over wind farm from Eolus

In August 2020, ewz took over the Stigafjellet wind farm built in Norway by the Swedish energy company Eolus Vind. With a total capacity of 30 megawatts, the wind farm achieves an annual production of 117 GWh of electricity, enabling ewz to increase its production from wind power by 20%.

OUR PROJECTS

Other clients
Analysis of the financing situation and development of a financing concept for ewl

Against the background of intensive investment activity as part of the "Solaris" corporate strategy, ewl requires an appropriate financing solution. With Solaris, ewl is pursuing the expansion of CO2-neutral, renewable and efficient energy sources, as an important contribution to the implementation of the climate and energy strategy of the city of Lucerne. To promote the fields of district heating, lake energy, heat pumps and services, an appropriately coordinated financing solution is to be secured. IFBC supported ewl in analyzing the financing requirements, carried out an assessment of the financing feasibility based on benchmarking, and prepared a financing concept with concrete implementation proposals for the structuring of the financing.

ewl is the leading provider of energy services in the area of Lucerne. Its ecologically and economically sustainable offerings include electricity, gas, heating, cooling, water, telecommunication, energy services and electrical installations.

Development of a new allocation mechanism and determination of hourly rates for intra-group cost allocation

IFBC was mandated by Axpo to analyze the current methodology of selected intra-group cost allocation and to provide recommendations for developing a new cost allocation methodology. Within the scope of the project, the corresponding hourly rates for cost allocation were re-determined.

The Axpo Group is a leading power supply company in Switzerland.

Financial advisor for the successful restructuring of the credit financing

As part of a restructuring and increase in its financing, Agro Energie Schwyz AG was able to successfully conclude a long-term credit facility with two cantonal banks and existing financing partners. This financing will ensure the further expansion and development of the district heating network as well as the operation of the ecological power plants. With its ecological production of heating and electricity in the Schwyz region, Agro Energie Schwyz AG makes a valuable contribution to create value for the region as well as to the creation of a more environmentally friendly energy future.

IFBC accompanied Agro Energie Schwyz AG as financial advisor during the entire financing process, from the development of the financing concept to the negotiations with potential lenders and finally the successful closing of the credit facility.

Agro Energie Schwyz AG is a local energy service company headquartered in Schwyz SZ. It produces CO2-neutral heat and ecological electricity from regional biomass with wood-fired power plants and a biogas plant. The heat supply of both private households and companies in the region is carried out with its own district heating network.

Financial advisor on the sale of Swissgrid shares to its own shareholders

As part of the transfer of the transmission network to Swissgrid AG, Kraftwerke Hinterrhein AG received Swissgrid shares as compensation for its transmission network assets. After the definitive conclusion of the transaction, these Swissgrid shares were now to be sold to the company's own shareholders. Since not all shareholders are interested in a purchase, a fair sales price for the Swissgrid shares must be ensured to guarantee equal economic treatment of all shareholders.

IFBC developed a concept for the valuation of the Swissgrid shares and the determination of the selling price for Kraftwerke Hinterrhein AG with the involvement of all relevant stakeholders. Based on the concept, IFBC performed the valuation and the determination of the selling price respectively.

Founded in 1956, Kraftwerke Hinterrhein AG is the largest partnered power plant in the canton of Graubünden and produces around 1500 GWh of electricity from hydropower every year. On behalf of its nine shareholders, around 723 million cubic meters of water are transformed into electricity.

M&A TRENDS AND MARKET ANALYSIS

EV/EBITDA multiples of European energy suppliers

Median
75%-Quartil
25%-Quartil

  • The EBITDA multiple shown is based on the Enterprise Value (EV) at the respective point in time and the EBITDA adjusted for extraordinary events of the last 12 months.
  • The valuation level of European energy suppliers has decreased in 2020. As of mid-2020, these companies showed an average multiple of about 5.9x.
  • In this context, the difference between the 25% and 75% quartile has widened.

EV/EBITDA multiples of renewable energy suppliers in Europe

Median
75%-Quartil
25%-Quartil

  • The average EV/EBITDA multiple of European renewable energy suppliers has risen since the end of 2018.
  • The valuation level of renewable energy suppliers, which is around 13.5x, is still significantly higher than the level of conventional energy suppliers, which are valued at around 5.9x EBITDA (see graph above).

EV/EBITDA multiples and Market to Book Ratio of Swiss energy suppliers

Median
Market to Book

  • The three listed Swiss energy suppliers show an average EV/EBITDA multiple of 8.0x in mid-2020, a valuation level above that of European energy suppliers.
  • The market/book ratio of Swiss energy suppliers shows an upward trend.

Source: Bloomberg.

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