by Sachin Murdeshwar
Singapore : Sembcorp Industries (Sembcorp) is pleased to announce that it has reached an agreement to acquire UK Power Reserve (UKPR), the UK’s largest flexible distributed energy generator, for £216 million (approximately S$385 million1). The deal marks a major step in line with Sembcorp’s new strategy to position itself for the global energy transition, grow its merchant energy capabilities, and build an integrated energy business in the UK.
UKPR owns and operates a portfolio of highly flexible distributed energy generation projectsacross 32 locations in England and Wales, with 533 megawatts in operation and a further 480megawatts in construction and under
Rationale for the Acquisition
The acquisition gives Sembcorp a firm foothold in flexible distributed energy, a new growth niche.
In today’s market, flexible distributed energy generation and energy storage are growing inrelevance, given their role in bridging supply gaps between intermittent renewables and conventional centralised thermal generators.
The addition of responsive merchant energy solutions broadens Sembcorp’s service offering and differentiates it from competitors. These new capabilities will also allow Sembcorp to better meet the needs of a fast-moving energy market. They are especially timely given the increasing importance of technology adoption in the industry.
Furthermore, the acquisition strengthens Sembcorp’s business in the UK. It will help the company rebalance its energy portfolio towards developed markets, in line with its new Group strategy announced in February this year.
“Markets, customers and stakeholders are looking for 21st century energy solutions that are more sustainable, flexible and competitive. Our belief is that we can achieve this by transforming our business model to provide a full spectrum of energy solutions with the right mix of capabilities and technologies. The acquisition of UK’s largest flexible distributed energy generator is an importantstep in this direction”, said Neil McGregor, Group President & CEO of Sembcorp. “It will transform our UK business from a centralised utilities provider on Teesside, into an integrated energy business with operations across the country.”
“This acquisition gives Sembcorp strong capabilities in the new growth niche of flexible distributed generation and energy storage, in line with our goal of being a future-ready business that is poised to benefit from the global energy transition. It will also build up Sembcorp’s merchant energy business, which we have identified as an area of focus for the Group.”
Nomi Ahmad, Head of Sembcorp’s UK utilities business, added, “Sembcorp is delighted to have secured this exciting business, which deepens our presence in the UK considerably and gives us a significant presence in distributed generation. The acquisition gives us greater opportunities for further expansion, and sets us firmly on track to grow in the UK.”
Flexible distributed generation – the fastest growing sector in UK power market
In the UK, the power market is undergoing an unprecedented transition. There has been a clear shift away from the predominantly fossil-fuelled, centralised generation model of the past. Energy is now being produced closer to the point of demand, with distributed energy increasing in relevance.
Renewables are on the rise, with the National Grid estimating that installed renewable capacity could grow to over 110 gigawatts in 2050, from just under 40 gigawatts today. The intermittency of renewables, coupled with the closure of ageing thermal plants, has led to increased demand for flexible energy solutions to bridge supply gaps and add stability to the system.
Increasingly, the UK’s energy market is being supplied by both centralised and decentralised renewables, supported by smart energy technologies that can respond to the market within seconds and keep supply in tune with demand. Flexible distributed energy solutions, such as small-scale rapid-response gas-fired plants and batteries, also represent the fastest growing sector in the country’s power market today.
Deal Structure and Details
Sembcorp has, through a 100%-owned entity, reached an agreement to acquire 100% of UKPR’s holding company, Repono Holdco 1 (Repono), from private equity investors Inflexion and Equistone, (which each hold a 42.5% stake) and from members of UKPR management (who own a 15% stake).
Sembcorp was selected as the buyer for the deal, following a competitive process initiated by UKPR’s shareholders. The consideration for the transaction was determined taking into account discounted cash flows and relevant transaction multiples, and will be settled in cash. Sembcorp’s equity investment in UKPR will be funded through a mix of internal cash resources and external borrowings. Completion of the acquisition is expected by the end of this week. Following the acquisition of shares, Sembcorp will consolidate all assets and liabilities of UKPR, including its net debt.
The financial effects of the Acquisition on the Company have been prepared based on the audited consolidated financial statements of the Group for the financial year ended December 31, 2017 and the following assumptions:
(a) the financial effects of the Acquisition are purely for illustrative purposes and should not be taken as an indication of the actual financial performance or position of the Group following the Acquisition, nor a projection of the future financial performance or position of the Group after completion of the Acquisition
(b)for the purposes of computing the financial effects of the Acquisition on the earnings of the Group, the Acquisition is assumed to have been completed on January 1, 2017
(c) for the purposes of computing the financial effects of the Acquisition on the net tangible asset value of the Group, the Acquisition is assumed to have been completed on December 31, 2017
(d) for the purposes of computing the financial effects of the Acquisition, the adjusted unaudited consolidated net profit after tax of Repono for the year ended March 31, 2018 and the adjusted unaudited consolidated net tangible asset value of Repono as at March 31, 2018 of S$124.3 million were used. This adjustment was to assume that as at April 1, 2017, investors’ and management’s loan notes were extinguished
(e) Purchase Price Allocation (PPA), will be performed within the next 12 months of the completion of the Acquisition. As such, the effect of the PPA has not been included in computing the financial impact of the Acquisition in (d) above
(f) the exchange rate for pound sterling to Singapore dollar is assumed to be £1: S$1.7830, as at May 29, 2018; and
(g) total transaction cost for the Proposed Acquisition was S$7.8 million.