The mechanics of an M&A deal

What's it like to work on a big M&A deal? We spoke to two bankers at RBC Capital Markets to find out
Investment banking
Types of work

What was the big deal?

Investment bank RBC Capital Markets, a leader in mergers and acquisitions (M&A) in the renewables sector, recently advised private equity investor HgCapital on the sale of its wind energy development business, Ridgewind, and its operating wind farm portfolio.

In 2013, Ridgewind was sold to Blue Energy, a UK-based renewable energy investor and developer, while the operating portfolio was purchased in 2012 by insurance group Munich Re for an undisclosed sum.

Here two RBC Capital Markets bankers, one senior and one junior, tell us about the part they played on these deals.

Lorna Shearin

Managing Director and co-head of Utilities and Renewables

What does the Utilities and Renewables team do?

My team does a lot of sell-side work in the renewables sector. That means we advise clients in this sector looking to sell their business, or part of it. In the case of HgCapital, my team and I were appointed as advisors to run the sale process for its wind farm portfolio and its wind energy development business.

How were you involved in the pitching process?

In order to win the deal, my team and I were pitching against several different investment banks in a process known as a "beauty parade". My role was to present RBC's pitch to HgCapital. It involved going through our credentials in relation to previous deals, giving a view on how much the businesses they were selling were worth, and outlining who the likely buyers might be.

What was your role once the deal was underway?

My role involved considering whether the most value could be achieved for the client by selling the operating wind farms and the development wind portfolio together, or whether it would be better to sell the wind farm portfolio and the development business separately.

We ended up deciding the best solution for our client was to split the business in two. In order to work out the best route to take, we worked with HgCapital to value its wind farm assets and the development business.

Once we'd decided to sell the development business and the operational wind farm portfolio separately, we began to ask potential buyers to bid for them within a certain period of time in what's called a round-one sale process.

At this stage, I travelled a lot, visiting a lot of potential buyers in person. I went to Asia, across Europe, and to the US and Canada. Many of them weren't familiar with the UK market, so I had to provide background on how the UK is regulated.

For example, Munich Re, which eventually bought the operating assets, had never invested in the UK renewables market before. So my job was to give them access to all the relevant documentation, and also take them to meet officials at the Department of Energy & Climate Change and the Treasury so they could understand how government policies in this area worked and what government support there was for the renewables industry.

After rounding up buyers, I then shortlisted the most suitable for HgCapital and set up calls between them and the company's technical directors. I arranged for the buyers to have access to reports the analysts and associates produced and to be taken on site visits.

After that I worked closely with HgCapital to choose a buyer and then on negotiating share purchase agreements and the other terms of the sale.

What's the future of the renewables sector?

As natural resources dwindle, renewables are part of a growing sector that's becoming increasingly important to our daily lives.

The UK government is aiming to meet 15 per cent of the country's energy demand from renewable sources by 2020, which has boosted growth in the renewable energy sector over the last five to six years, across onshore wind, offshore wind, and now increasingly solar energy.

The UK renewables sector is also thriving because it's capturing the attention of foreign investors and buyers, who see the UK as more transparent about infrastructure regulation than other markets.

Ben Alderson

Associate, Utilities and Renewables

How were you involved in the pitching process?

My role in the pitching process was to work out the potential value of HgCapital's portfolio, research potential investors that might be interested in UK onshore wind, and provide general information on the renewables sector as a whole, including government policy and regulation.

What was your role once the deal was underway?

At the time the deal took place I was an analyst and I spent a lot of my time working closely with the associate on the deal. Our job was to value the assets and business that HgCapital was planning to sell, as well as put together the marketing materials for buyers, such as the information memorandum. At the same time, we also sought guidance from the vice-president, the directors and managing directors as we developed the valuation and marketing materials.

In terms of valuing the wind portfolio and the Ridgewind business, our job was to create a financial model to reflect the day-to-day operations of the different wind farms and the costs involved with developing and constructing new projects. We worked closely with technical consultants and the management team, who were wind farm specialists, to gather data, and built a fairly detailed view on valuation.

In parallel, I worked with the associate to put together a two to three page marketing document called a "teaser" that we sent out to prospective buyers. If any were provisionally interested in what we were selling, we sent out a much more detailed document on the business, known as an information memorandum and which in the case of HgCapital was a 150 page document.

We got a lot of guidance from managing directors and directors when putting the memorandum together, and writing it meant my understanding of HgCapital and their assets and the business they were selling became clearer. More senior people were always open to hearing my point of view, and were very respectful of what I had to say.

Once potential buyers were lined up, it was our job to help analyse what would be the best deal for HgCapital and recommend a bidder that they should move forward with.

What did you learn the most from the deal?

As an analyst or associate you're often reliant on information from third parties such as technical consultants or accountants. We quickly learnt how important it is to start those relationships early in the process to make sure they understand what you require from them in order to do your work. It goes the other way too - you need to communicate with them regularly in order to give them the things they need to do their work effectively.

You should also make sure you're regularly speaking to the clients to understand what they want. You don't want to do hundreds of different versions of a piece of valuation analysis if it's not what they want to see. So cultivating these relationships is important too.

Any final thoughts?

RBC is a very good place for acknowledging your hard work and giving constructive feedback so that you can develop your skills and ultimately move up through the organisation.

If you're interested in working for RBC, I would recommend building an awareness of what we do on a day-to-day basis and getting a feel for what methods we might use for valuing companies, whether that's looking at comparable deals or looking at discounted cash flow analysis. That way, you can refer to deals in your application and have an intelligent discussion with interviewers.