Dealmakers are reporting a diminishing appetite by major global funds embarking on M&A activity in areas related to sectors such as oil and gas as they increasingly turn their attention to clean energy opportunities.
Orocobre’s tie-up with Galaxy Resources announced on Monday is the latest evidence and has taken the amount of M&A activity in the past six months related to clean energy to at least $14bn. Sources say the deal is reflective of what is happening across the board.
The $4bn merger between lithium producers Orocobre and Galaxy came about due to a major ramp-up in demand for lithium to produce batteries used in electric cars.
Orocobre has tapped UBS and law firm Jones Day for the $4bn proposal, while Galaxy is working with Standard Chartered Bank and law firm Ashurst.
The merger of equals will create the fifth-largest global lithium chemicals company and the scale will make expansion and growth an easier exercise.
Other recent transactions have included IGO’s sale of its $903m stake in gold mine Tropicana to Regis Resources as part of a move to focus on commodities used for clean energy. IGO in December agreed to buy half of the Australian lithium assets of China’s Tianqi for $1.9bn.
Meanwhile, an M&A upset involving Tilt Renewables last week was all brought about by the voracious appetite by global funds for clean energy assets.
The Powering Australia Renewables consortium, which includes AGL and QIC, The Future Fund and Mercury Energy, had won a contest to buy Tilt Renewables, only for Canadian pension fund CDPQ to come from left field and put forward a higher offer.
This prompted the AGL and Future Fund-backed consortium to lift its price even further on Friday — to $2.8bn on the proviso that a higher offer could not be accepted by another party.
Tilt owns wind and solar farm assets and developments in Australia and New Zealand and was a rare opportunity for parties to gain major exposure to renewable energy assets.
Another development on the M&A scene last week in keeping with the trend is building materials provider Boral announcing it may consider a sale of its US-based fly ash operations.
Fly ash was earlier considered the one part of the US operations that Boral wanted to keep under its previous management.
But the material that is used to strengthen concrete is made through coal-fired power, which is out of favour with investors and new technologies using clean energy are being developed that are just as effective.
Other companies like CIMIC’s mining services division Thiess are expected to make acquisitions this year to diversify away from coal, while listed groups exposed to the sector are becoming increasingly out of favour not just with investors but lenders as well.
As part of the lithium deal, Orocobre shareholders will own 54.2 per cent of the merged company, leaving Galaxy with 45.8 per cent.
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