CPPIB Buys Pattern Energy in Huge PIPE Deal

The Canada Pension Plan Investment Board (CPPIB) has just put out a statement stating it will acquire Pattern Energy in an all cash deal valued at approximately $6.1 billion:

Pattern Energy Group Inc. (Nasdaq and TSX: PEGI) (“Pattern Energy” or “the Company”) and Canada Pension Plan Investment Board (“CPPIB”) today announced they have entered into a definitive agreement, pursuant to which CPPIB will acquire Pattern Energy in an all-cash transaction for $26.75 per share, implying an enterprise value of approximately $6.1 billion, including net debt.

CPPIB and Riverstone Holdings LLC (“Riverstone”) have concurrently entered into an agreement pursuant to which, at or following the completion of the proposed acquisition of Pattern Energy by CPPIB, CPPIB and Riverstone will combine Pattern Energy and Pattern Energy Group Holdings 2 LP ("Pattern Development") under common ownership, bringing together the operating assets of Pattern Energy with the world class development projects and capabilities of Pattern Development.

Under the terms of the merger agreement, Pattern Energy shareholders will receive $26.75 in cash consideration for each share of Pattern Energy, representing a premium of approximately 14.8% to Pattern Energy’s closing share price on August 9, 2019, the last trading day prior to market rumors regarding a potential acquisition of the Company. The consideration also represents a 15.1% premium to the 30-day volume weighted average price prior to that date.

The Pattern Energy management team, led by Mike Garland, will lead the combined enterprise.

“This agreement with CPPIB and Riverstone provides certain and significant value for Pattern Energy shareholders with an all cash transaction at a very attractive stock price,” said Mike Garland, CEO of Pattern Energy. “Over the years, Pattern Energy has been able to provide shareholders with a consistent dividend and now our shareholders can realize the value embedded in the Company. We believe the proposed transaction reflects the strength of the platform we have built.”

“In reaching this transaction, the Pattern Energy Board of Directors undertook a robust process that we believe culminated in a transaction that delivers value to shareholders,” said Alan Batkin, Chairman of the Pattern Energy Board of Directors. “As part of this process, the Board formed a special committee, composed of independent directors that directed the process at all times, and retained independent legal and financial advisors to assist our review of the transaction and provide a fairness opinion. The special committee reviewed multiple bids as part of a thorough process that involved multiple parties and evaluated the transaction against the Company’s standalone prospects, performance and outlook relative to historic trading multiples and yields. Based on this review and in light of the transaction structure, the special committee unanimously determined that this transaction is in the best interest of the Company’s shareholders and recommended it to the full Pattern Energy Board, which also determined that this transaction is advisable and in the best interests of the Company’s shareholders. The transaction delivers significant, immediate and certain value to the Company’s shareholders.”

“Pattern Energy is one of the most experienced renewables developers in North America and Japan with a high-quality, diversified portfolio of contracted operating assets, aligning well with CPPIB’s renewable energy investment strategy and the increasing global demand for low-carbon energy,” said Bruce Hogg, Managing Director, Head of Power and Renewables, CPPIB. “The Pattern Energy management team has a proven track record of identifying and executing development strategies with differentiated competitive advantages. We look forward to working with Pattern Energy and Riverstone to grow the company.”

"We have long been believers in Pattern Energy and have had a successful partnership with the Company since we first invested in it more than 10 years ago,” said Chris Hunt and Alfredo Marti, Partners at Riverstone. “We have worked closely with Mike and the Pattern Energy team to grow the Company from a development startup into a multinational operator and supplier of low cost, renewably sourced energy. We are confident the team will continue to develop world-class wind and solar assets, which will be an important part of our transition to cleaner forms of power generation. We look forward to continuing to support them in driving the Company’s next phase of development.”

Transaction Details

The transaction is expected to close by the second quarter of 2020, subject to Pattern Energy shareholder approval, receipt of the required regulatory approvals, and other customary closing conditions. The Pattern Energy transaction is not contingent upon the completion of the Pattern Development transaction.

Upon the completion of the transaction, Pattern Energy will become a privately held company and shares of Pattern Energy’s common stock will no longer be listed on any public market. Pattern Energy will continue paying its quarterly dividend through the transaction close.

Advisors

Evercore and Goldman, Sachs & Co. LLC are acting as independent financial advisors to Pattern Energy’s special committee, and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as independent legal counsel to the special committee.

About Pattern Energy

Pattern Energy Group Inc. (Pattern Energy) is an independent power company listed on the Nasdaq Global Select Market and Toronto Stock Exchange. Pattern Energy has a portfolio of 28 renewable energy projects with an operating capacity of 4.4 GW in the United States, Canada and Japan that use proven, best-in-class technology. Pattern Energy’s wind and solar power facilities generate stable long-term cash flows in attractive markets and provide a solid foundation for the continued growth of the business. For more information, visit www.patternenergy.com.

About Pattern Development

Pattern Development is a leader in developing renewable energy and transmission assets. With a long history in wind energy, Pattern Development has developed, financed and placed into operation more than 4,000 MW of wind and solar power projects. A strong commitment to promoting environmental stewardship drives the company's dedication in working closely with communities to create renewable energy projects. Pattern Development has offices in San Francisco, San Diego, Houston, New York, Toronto, Mexico City, and Tokyo. For more information, visit www.patterndev.com.

About CPPIB

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits in the best interests of 20 million contributors and beneficiaries. In order to build diversified portfolios of assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPPIB is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2019, the CPP Fund totalled C$400.6 billion. For more information about CPPIB, please visit www.cppib.com or follow us on LinkedIn, Facebook or Twitter.

About Riverstone Holdings

Riverstone is an energy and power-focused private investment firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre, Jr. with over $39 billion of equity capital raised to date. Riverstone conducts buyout and growth capital investments in the exploration & production, midstream, oilfield services, power and renewable sectors of the energy industry. With offices in New York, London, Houston and Mexico City, the firm has committed approximately $40 billion to more than 180 investments in North America, South America, Europe, Africa, Asia, and Australia.

This deal, taking Pattern Energy Group (PEGI) private must be one of the biggest, if not the biggest PIPE deal of the year (PIPE = private investment in public equity). I'm basing this on 2018 data on PIPE deals but I'm pretty sure it's the biggest PIPE deal of the year.

Regardless, it's a huge deal with an experienced private equity partner, Riverstone Holdings, which is a leading energy and power-focused PE fund. I like what this fund posted on its website on the big picture:

Riverstone is an energy and power-focused private investment firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre, Jr. with approximately $39 billion of capital raised. We conduct buyout and growth capital investments in the exploration & production, midstream, oilfield services, power, and renewable sectors of the energy industry.

With offices in New York, London, Houston, Mexico City, and Amsterdam, we have committed nearly $39 billion to nearly 180 investments in North America, South America, Europe, Africa, Asia, and Australia.

Our organization is a flat, nimble structure that suits us and the management teams with which we partner. In fact, we have worked with many of our current CEOs multiple times before, and without continued mutual respect and repeat commitment from both sides we could not be as effective.

Riverstone reinforces this pledge by having plenty of ‘skin in the game,’ and over $1 billion of the firm’s commitment to funds and operations comes directly from our partners, employees, management teams, and other associates.

For a big global fund, it sounds like Riverstone has gotten the culture and alignment of interests right.

Why is Riverstone taking Pattern Energy Group (PEGI) private and why is CPPIB financing this deal? Simple, they believe the current stock market valuation doesn't reflect the true long-term value of the company and by taking it private and combining Pattern Energy and Pattern Development under common ownership, they believe they can unlock significant value over the long run.

Check out the 5-year weekly chart of Pattern Energy Group (PEGI) below:

It's had a decent run up since bottoming back in March 2018 but by taking it private, it's obvious CPPIB and Riverstone think they can unlock more value and either exit through another stock listing or by selling it at multiples of what they bought it for.

Moreover, Bruce Hogg, Managing Director, Head of Power and Renewables at CPPIB, nailed it on the press release: “Pattern Energy is one of the most experienced renewables developers in North America and Japan with a high-quality, diversified portfolio of contracted operating assets, aligning well with CPPIB’s renewable energy investment strategy and the increasing global demand for low-carbon energy. The Pattern Energy management team has a proven track record of identifying and executing development strategies with differentiated competitive advantages. We look forward to working with Pattern Energy and Riverstone to grow the company.”

Importantly, the Pattern Energy management team, led by Mike Garland, will lead the combined enterprise. This ensures alignment of interests with CPPIB and Riverstone (CPPIB never operates companies it purchases, it teams up with management teams and its private equity partners to extract value from it).

It is important to remember that a PIPE deal of this scale is significant. Shareholders of Pattern Energy Group received a decent premium but it will take time for CPPIB and Riverstone to unlock all the value it is looking for on this deal.

Still, a roughly $6 billion deal is huge ($2.63 billion in equity, the rest was financed through debt), it's precisely the type of scalable long-term deal a fund like CPPIB is looking for to move the needle on a $400 billion portfolio.

Bruce Hogg and his team have cemented their reputation as Canada's green team and this is yet another great long-term deal they can add to their list of many as they forge ahead beefing up CPPIB's renewable energy portfolio.

In other CPPIB related news, APG will acquire a 39% stake in Interparking, one of Europe’s largest car park owners and operators. APG will buy the stake from CPP Investment Board Europe S.à r.l, a wholly owned subsidiary of Canada Pension Plan Investment Board (CPPIB). AG Real Estate and Parkimo keep their current positions in Interparking. Closing of the transaction is expected to take place over the coming months.

Scott Lawrence, Managing Director, Head of Infrastructure, CPPIB said: “Interparking has been an important and integral part of our European infrastructure portfolio for a number of years. Our partnership with our co-investors – AG Real Estate and Parkimo – and the Interparking management team has been very positive, and has contributed to the company’s continued success as a leading owner and operator of high quality car parks across Europe.” 

This shows you that for the right price, CPPIB is a seller of its private market assets and this was another great deal for CPPIB in Europe.

Lastly, Chief Investment Officer reports that CPPIB has named Zubaid Ahmad to the newly created position of senior advisor for the US:

The US market accounts for nearly one-third of the CPPIB’s entire portfolio. As of June 30, the fund had investments in the US that were worth C$126.5 billion, or just under 32% of the fund’s total asset value.

“The US remains the largest investment region for CPPIB and appointing Zubaid as senior advisor will build on our presence and network of investment partners,” Alain Carrier, CPPIB’s head of international, said in a release. “Amid the competitive investment landscape, adding another dedicated resource with Zubaid’s expertise and network will help to focus our efforts and identify new opportunities.”

Ahmad will be based out of New York, and the fund said he will focus on identifying and evaluating potential investment opportunities and partners to help improve the fund’s position in the US market. He will work closely with CPPIB’s investment departments to support deal origination and to contribute to the assessment of investment opportunities in various sectors and asset classes.

CPPIB owns holdings in public and private companies throughout North America, including real estate developments, investment funds, private equity, and hedge funds.
Ahmad has more than 35 years of experience in corporate finance and has ties to the investment banking and private equity communities. He is the founder and managing partner of Caravanserai Partners LLC, a New York-based boutique merchant banking firm that focuses on M&A, sovereign advisory, strategic capital raising and alternative investment activities.

While with Caravanserai Partners, Zubaid was also a senior advisor for investment manager Muzinich & Co., and for London-based private equity firm Actis. Prior to launching Caravanserai, he was vice chairman of Citigroup’s Institutional Clients Group, and co-head of its Global Asset Managers group. He has also held senior roles at J.P. Morgan and Credit Suisse, among other firms.

“I am pleased to partner with a global investment organization of CPPIB’s caliber and reputation, and to help expand its investment activities in the United States,” Ahmad said in a release. “I have had the opportunity to work with a number of the CPPIB investment teams over the years in my other roles and am looking forward to working with the organization even more closely.”

Zubaid received an MBA from Harvard University and a Bachelor of Science in business administration from Georgetown University.

CPPIB’s New York office was opened in 2014 and is headed by Michael Hill. CPPIB expanded its US presence in June when it opened an office in San Francisco.

Sounds like Zubaid Ahmad has a big role to fill at CPPIB and he definitely has the right credentials and experience for this job.

Below, at the core of Pattern are two companies “Pattern Energy” and “Pattern Development”. Watch this clip below to learn more about this great company which is now owned by over 20 million Canadians as part of the CPP Fund.

Also, watch a clip where Tetsunari Iida, Executive Director of the Institute for Sustainable Energy Policies (ISEP); Sachio Ehara, Director of the Institute for Geothermal Information and a Professor Emeritus of Kyushu University and Mark Anderson, Japan Country Head, Pattern Energy Group and and executive of Green Power Investments KK in Tokyo, discuss the current state of renewable energy in Japan (2017).

Third, Alfredo Marti, partner at Riverstone Holdings, discusses where he sees opportunity for oil investors in Latin America.

Speaking of Latin America, take two minutes with Rodolfo Spielmann, CPPIB’s Managing Director and Head of Latin America, to read this excellent interview as he shares his insights on investing in the region.