After a frenzied summer, global dealmaking is looking to set new records in 2021, with M&A activity approaching $4 trillion thanks to an abundance of cheap credit, lofty share prices, and record profits.
There's another less-discussed reason why mergers have lately become all the rage: Surging IPOs.
After years of disappointment, the U.S. IPO market has been recording a strong comeback. Last year, 471 U.S. companies (including SPACs) went public, representing levels last seen in 1999 at the height of the Dotcom boom. With markets awash with liquidity, the first half of the current quarter has set the pace for yet another record year for IPOs both in the domestic market and globally. Studies have shown a clear linkage between IPO and merger waves, with IPO activity preceding merger waves.
Unfortunately, the same cannot be said about the energy sector.
It appears that Wall Street is still unsure about the U.S. oil and gas patch if the first initial public offering of a U.S. shale driller in four years is any indication.
Despite all the chatter about natural gas being the perfect bridge fuel in the transition to clean energy, even a natural gas explorer backed by private-equity giant Blackstone Group Inc. was unable to raise the capital it expected. In its March IPO, Vine Energy Inc. (NYSE:VEI) sold 21.5 million shares for a total of $301 million, falling short of its target of $361 million. To get the deal done, Vine had to accept a lower price than its target price, while Blackstone and its affiliates had to step in with a $60 million purchase to push it through.
Things are not much different elsewhere, with the IPO of Australian shale gas explorer Tamboran Resources also underwhelming.
In sharp contrast, investors appear a lot more enthusiastic about funding clean energy startups. Whereas oil and gas IPOs might not be in play just yet, the renewable energy sector is a different beast altogether.
Brazil's biofuel company Raizen went public in August, raising $1.3B and snagging a $14B valuation in one of Brazil's biggest-ever IPOs. Raizen is a joint venture between Cosan S.A. (NYSE:CZZ) and Royal Dutch Shell Plc (NYSE:RDS.A).
Dutch e-bus manufacturer Ebusco also had a successful IPO in October that valued the company at $1.3B, while shares of Swedish automotive manufacturer Volvo Cars (VOLCARb.ST) have soared 22% after its Friday debut.
Given this backdrop, it's quite obvious that clean energy listings are the flavor of the month. Here are three more renewable energy IPOs to keep an eye on.
#1. LG Energy
Last year, LG Chem (OTCPK:LGCLF), South Korea's largest chemical company and a leading EV battery supplier, announced plans to spin off its battery division LG Energy Solution (LGES). LGES is one of the world's top electric vehicle (EV) battery makers, supplying the likes of Tesla (NASDAQ:TSLA) and General Motors Co (NYSE:GM).
LG Energy Solution applied for preliminary approval of an IPO that publication IFR says could fetch $10 billion-$12 billion, easily South Korea's biggest-ever listing.
LGES and the Korea Exchange announced the application for approval of the previously flagged IPO on Tuesday, without mentioning its size. IFR reported the potential size earlier in June, citing people close to the deal.
LGES says the IPO was planned for 2021, although the company is yet to confirm or deny the IPO size.
A $10 billion IPO would be more than double the 2010 IPO of Samsung Life Insurance, which was valued at 4.9 trillion won ($4.39 billion). If successful, it would mark the third U.S. IPO of South Korean companies following the $2 billion domestic float of material solution provider SK IE Technology Co Ltd and $4.6 billion U.S. IPO of South Korean e-commerce company, Coupang.
The timing of the IPO could not have been better, with global sales of battery-powered electric cars exploding as automakers race towards electrification.
LGES has announced plans to invest more than $4.5 billion in its U.S. battery plant by 2025.
#2. Pod Point
Pod Point, a company that provides charging points for electric vehicles in Britain, has announced plans to list on the London Stock Exchange.
Majority owned by France's EDF (EDF.PA), Pod Point has revealed that it plans a premium listing with a free float of at least 25%. Following the listing, EDF will maintain a stake of more than 50%.
Pod Point is Britain's largest provider of home charging points for EVs and the second largest provider of workplace charging infrastructure. The company booked revenue of 33.1 million pounds ($45.18 million) in the year ended Dec. 31, 2020, with an adjusted underlying loss of 12.3 million pounds.
#3. Harmony Energy
Battery energy storage company Harmony Energy Income Trust has announced its intention to go public in a bid to fund the development of 213.5MW of projects using Tesla's battery storage technology.
Harmony Energy will list on the Specialist Fund Segment of the London Stock Exchange through an institutional placing with up to 230 million new ordinary shares at an issue price of 100p per share. The company says it's targeting a dividend yield of 8% per annum, payable quarterly from 2023.
Harmony says it will use proceeds from the IPO to acquire five projects with a capacity of 213.5MW (427MWh) from Harmony Energy Limited. Harmony has contracted with Tesla for this initial portfolio, including agreed pricing and timing of delivery.
The company will follow up on this initial portfolio with a 99MW (198MWh) advanced project acquisition, bumping up Harmony's initial portfolio to 312MW (625MWh).
Paul Mason, managing director of the Investment Adviser, says battery storage offers exciting growth potential, with the country's installed capacity expected to reach 43GW by 2050 from just 1.2GW now.
"Investing in battery storage energy systems requires extensive sector expertise and knowledge, and our team has decades of investment and industry experience. Battery storage energy systems are a vital cog in the renewable energy value chain. We believe there is enormous potential in the sector and the 2-hour duration battery will be best placed to take advantage of this."
By Alex Kimani for Oilprice.com
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