How Eurazeo transformed a local PV developer into an IPP powerhouse

Laurent Chatelin and Pierre Larivière explain how the firm built the solar division of a French energy group into Reden Solar, which generated an IRR of 42% and a money multiple of 4.4x upon exit.

Everyone is familiar with the expression “making an entrance”, but in the case of Paris-based Eurazeo and the recent sale of Reden Solar, “making an exit” seems more appropriate.

Having first invested in the solar division of the Fonroche Energy Group in 2010 using its own balance sheet, the Paris-based firm sold the company, Reden Solar as it is known today, to a consortium led by Macquarie Asset Management and including British Columbia Investment Management Corporation and MEAG.

“This sale was completed on the basis of an enterprise value of €2.5 billion and generated cash proceeds of €633 million for Eurazeo, representing a cash-on-cash multiple of 4.4x and an IRR of around 42 percent,” the firm said in a statement, announcing completion of the sale.

When asked whether such returns are feasible in the solar energy space or whether Reden Solar is an exception, Pierre Larivière, managing director, real assets at Eurazeo, replies: “I think what is exceptional – which led to this kind of return – is the development of the company. It’s a growth trajectory that the management team has been able to initiate and deliver over the years.

“To keep delivering the pipeline that they have secured – in terms of scale, in terms of pace of development, this has really been, in my view, the exceptional achievements of the group, which has resulted in an exceptional return,” Larivière, who led the deal, continues.

In light of the need for additional capacity, strong potential and a mature framework in terms of financing, skill set and regulation, a result such as this in the solar sector “should be replicable”, Larivière says, citing Eurazeo’s expertise and track record in private equity and platform management.

From solar developer to IPP

Eurazeo invested in the original asset, which essentially developed solar projects for third parties, at a time when the firm did not have an infrastructure business.

In 2017, Eurazeo decided to carve out the Fonroche solar division and make it into an independent company.

“The first major strategic decision we took once the group was made independent was to turn it into a real independent power producer that would develop, build, own and operate all the assets,” Larivière recounts.

“So, from 2017, every single project that had been developed since then was 100 percent owned by Reden Solar, which really started to build its own portfolio and did not work for third parties anymore,” he continues.

It was at that time that Eurazeo decided to partner with InfraVia Capital Partners, which acquired a 53 percent stake in Reden Solar with Eurazeo retaining the balance.

There were a couple of reasons Eurazeo decided to bring in a partner, according to Larivière. “The first one was that even though Reden Solar was not very large, it could still have been a relatively large equity ticket for our real assets division that had just been established two years before. The second was that we chose to partner with InfraVia because of their skills in infrastructure and in renewable energy specifically,” he explains.

The company has grown its portfolio from around 150MW in 2017 to 750MW in operating capacity by the end of 2021. It has also built up a pipeline of around 15GW, “with a significant part of that secured”, according to Larivière, “which also explains the size of this transaction and the appetite that we had for the group from many investors”.

Reden Solar has also significantly expanded its geographic presence, from developing projects in France when it was still part of the Fonroche Group, to having projects and teams in Greece, Italy, Spain and Portugal.

While the company is also present in Chile, Mexico and Puerto Rico, Europe accounts for roughly 80 percent of its portfolio in terms of revenue and margin, and about 90 percent when taking its project pipeline into consideration. “It’s by far a pan-European group”, Larivière says.

“For me, Reden epitomises what happens when private equity meets infrastructure,” adds Laurent Chatelin, whom Eurazeo hired in January 2021 as partner to found its infrastructure business. “That is also why we were attracted to Eurazeo when we set up the infrastructure platform,” Chatelin continues, referring to Martin Sichelkow and Melissa Cohen, his former colleagues from Paris-based Marguerite, who also joined Eurazeo last year.

“Value is derived not only through the assets but also through building a platform, which requires strong management, putting in place the right incentive plans and also having the capacity to go beyond the home country,” he continues. “And that has been the story of Reden Solar.”