The number of merger and acquisition deals completed within the renewable industry in Q1 2020 dropped by nearly 25% from Q4 2019. This is due to different factors related to the COVID-19 crisis.
According to GlobalData, factors such as risk aversion from prospective buyers, difficulty in conducting due diligence, deal financing challenges and additional time required to obtain the necessary approvals are negatively impacting merger and acquisition deals within the renewables sector.
However, the number of deals to be closed are expected to increase later this year owing to small developers struggling to secure financing.
Somik Das, a senior power analyst at GlobalData, said: “While big and well-capitalised developers are expected to have little problem in accessing the funding they require, smaller developers will struggle to secure financing amid the COVID-19 uncertainty, which could force the sale of projects and create opportunities for M&A activities in H2 2020. Once the volatility subsides, companies with substantial cash reserves and credit profiles will be able to utilize their leverage to pursue deals and capitalise on low post-COVID-19 asset valuations, which is expected to intensify market activity in the latter half of the year – provided the pandemic has subsided.
“The ongoing impact of the COVID-19 outbreak on global financial markets is making it harder to establish a financial agreement when it comes to M&As. Existing uncertainty and market volatility make it difficult to analyze the value of a company or asset, which slows down transactions. Continuation of the crisis could impact takeovers, with investors re-evaluating potential transactions and stakeholders opting to stack their finances during the lean period.
“Potential buyers are being forced to redirect their resources towards mitigating the impact of COVID-19 on their businesses, which pushes them away from development goals such as maintaining growth through acquisition strategies.”