UK regulatory shifts prompt Terra Firma to take Infinis private

The private equity firm is buying back the 30% that it listed in 2013 as it looks to monetise Infinis as a private company.

Sweeping changes to the UK political and regulatory environment for renewable energy have prompted Guy Hands’ Terra Firma to take clean energy producer Infinis private, after failing to sell its majority interest in the company for the last year.

The deal will see Terra Firma subsidiary Monterey Capital, which already owns 68.5 percent of Infinis, acquire the 30 percent that was listed in 2013 (the remainder is owned by management and employees). The deal will value Infinis at £555 million ($859 million; €756 million) and will offer shareholders 185 pence per share in cash – a 40.4 percent premium to yesterday’s closing price of 131.75 pence and a 38.2 percent markup to its one month average closing price. When it listed at the bottom of its range in 2013, Infinis started trading at 260 pence per share, valuing the firm at £780 million and netting Terra Firma some £234 million.

Terra Firma chairman Guy Hands admitted the take-private deal was a result of recent regulatory changes, which have nixed Infinis’ onshore wind growth prospects and hit its revenues through added taxes:

“We have considered gradual sell-downs of our interest in the company since its IPO in November 2013 and more recently we have also explored other strategic options, but the change in the regulatory environment for Infinis has prompted us to rethink our strategy.” Hands added the deal “allows Terra Firma to pursue alternative options to monetise its investment in Infinis once it is a private company”.

Infinis chairman Ian Marchant said “the challenging regulatory and political environment and the reduction in power prices in the last two years have adversely affected both the cash generation and the growth prospects of the business”. He added Infinis had been looking at offers to sell “the whole business as well as selling the assets separately”.

Infinis is Guy Hands’ great rags to riches story. “An orphaned landfill gas operation”, as Hands put it, within Waste Recycled Group, Terra Firma bought the company in 2003 in a €122 million deal. Since then, Infinis’ installed capacity has leapfrogged from an original 57MW to its current 585MW, turning it into one of the UK’s largest clean energy producers.

But its growth prospects – which originally involved developing a 340MW pipeline of onshore wind – had looked uncertain ever since the current Conservative government declared war on onshore wind. The company now says it plans to deliver 135MW of new onshore wind capacity by 2017 through four new onshore wind farms. 

In addition, the government’s sudden decision to force clean energy producers to pay the Climate Change Levy – a tax aimed at incentivising carbon reduction – will hit Infinis’ earnings before interest, tax, depreciation and amortisation by £7 million in the year ending 31 March 2016 and £10 to £11 million in the year ending 31 March 2017. As a result, Infinis is taking the government to court.

This article was first published on Low Carbon Energy Investor, Infrastructure Investor’s sister publication dedicated to global energy transition markets.