Canadian Power – Key Developments in 2019, Trends to Watch for in 2020: Mergers & Acquisitions

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The following is a chapter from our Power Group's fifth annual Canadian power industry retrospective Canadian Power Key Developments in 2019, Trends to Watch for in 2020. A PDF request form is available at the end of the article.

Introduction

2019 saw the continued growth of domestic M&A activity in the Canadian power sector, with an aggregate domestic deal value of US$7.4 billion. Notably, domestic investments in the power sector in 2019, exceeded the peak aggregate US inbound deal value from 2014, of US$7.2 billion.

By contrast, US and non-US inbound investments in the Canadian power sector remained stable in 2019, with an uptick from 2017 and 2018 figures. Aggregate domestic deal values for US and non-US inbound investments in 2019, were US$1.4 billion and US$1.2 billion, respectively, compared with US$262 million and US$163 million in 2018.

Source: MergerMarket

Foreign investments in the power sector by Canadian companies declined significantly in 2019, with an aggregate deal value of US$13.4 billion, compared with US$28.2 billion in 2018. The most significant region for outbound investment by Canadian companies continues to be the United States, followed by Latin America, Mexico, and the Caribbean; Europe; and Asia.

Domestic Investments by Canadians

Domestic investments in the power sector continued to grow in 2019, maintaining momentum from the surge in investment seen in 2017 and 2018.

Source: MergerMarket

Based on deal value, the major players in the 2019 Canadian power M&A market were Ontario Power Generation Inc., the Public Sector Pension Investment Board (“PSP Investments”), and the Alberta Teachers’ Retirement Fund Board (the “ATRF”).

The two largest transactions by value in the Canadian power sector followed the trend of high domestic investment activity in large energy infrastructure. The largest deal by value was Ontario Power Generation Inc.’s agreement to acquire a portfolio of combined-cycle natural gas–fired plants in Ontario from TransCanada Energy Ltd. for US$2.2 billion. TransCanada Energy is a publicly listed Canadian energy company focused on natural gas transmission and power services, headquartered in Calgary. The portfolio of acquired plants includes 100% of Halton Hills Generating Station and Napanee Generating Station, along with 50% of the Portlands Energy Centre.

The next major transaction in 2019, was the acquisition of AltaGas Canada Inc. by a consortium of investors comprised of PSP Investments and the ATRF. The consortium agreed to acquire all of the shares of AltaGas Canada Inc. for approximately US$1.3 billion. AltaGas Canada Inc. is a publicly listed Canadian company with natural gas distribution utilities and renewable power generation assets, headquartered in Calgary.

Other significant domestic transactions included the following:

TD Greystone Infrastructure Fund, a fund managed by TD Asset Management (“TD Greystone”), and IST Investmentstiftung (“IST”), a Swiss non-profit organization, agreed to acquire Alberta PowerLine Limited (“APL”), a Canadian transmission line developer, from Canadian Utilities Limited and Quanta Services, Inc. for US$1.2 billion. As part of the transaction, the Athabasca Chipewyan First Nation, Bigstone Cree Nation, Gunn Métis Local 55, Mikisew Cree First Nation, Paul First Nation, Sucker Creek First Nation, and Sawridge First Nation exercised an option to acquire a 40% stake in APL for US$90 million. McCarthy Tétrault acted as counsel to TD Greystone and IST.

Canadian Utilities Limited sold its Canadian fossil fuel– based electricity generation portfolio for approximately CAD$835 million, including the sale of the interest of ATCO Power Canada Ltd. (“ATCO Power”) in the Cory facility and related Saskatchewan assets to SaskPower International Inc., the sale of the equity interests of ATCO Power in Brighton Beach Power L.P. and Brighton Beach Power Ltd. to Ontario Power Generation Inc., and the sale of ATCO Power (2010) Ltd.’s direct equity interest in ATCO Power (and indirect interest in Alberta Power (2000) Ltd.) to Heartland Generation Ltd., an affiliate of Energy Capital Partners. McCarthy Tétrault acted as counsel to the lenders to Energy Capital Partners.

Noverco Inc. (“Noverco”) agreed to acquire all of the shares of Valener Inc., a publicly listed Canadian natural gas company headquartered in Montréal, for US$824 million. McCarthy Tétrault acted as counsel to Noverco.

Capital Power Corporation acquired the Goreway Power Station, a combined-cycle natural gas-fired plant located in Brampton, Ontario, from Toyota Tsusho Corporation (“Toyota”) and JERA Co. Inc. (“JERA”) for US$726 million. McCarthy Tétrault acted as Canadian counsel to Toyota and JERA.

Connor, Clark & Lunn Infrastructure and Desjardins acquired all of the shares of Regional Power Inc., a Canadian developer of hydroelectric and wind projects, from Manulife. McCarthy Tétrault acted as counsel to Manulife.

Columbia Basin Trust and Columbia Power Corporation acquired a 51% stake in the Waneta Expansion Hydro-electric Project from Fortis Inc. for US$1 billion. Following the transaction, FortisBC continues to operate the Waneta Expansion facilities and purchase its surplus capacity.

Whitby Hydro Electric Corporation (“Whitby”) and Veridian Corporation merged to form Elexicon Corporation, which is the single shareholder of the subsidiaries: Elexicon Energy Inc. and Elexicon Group Inc. Elexicon Energy Inc. serves over 162,000 residential and business customers with a combined rate base of approximately CAD$313.9 million. McCarthy Tétrault acted as counsel to Whitby.

Foreign Investments by Canadians

Aggregate foreign investment by Canadian companies in the power sector in 2019 fell by more than 50% from 2018 foreign investment figures. In 2019, the aggregate Canadian outbound deal value was US$13.4 billion, compared with US$28.2 billion in 2018.

As in previous years, the majority of foreign investment by Canadian companies in the power sector in 2019 was in the United States, with an aggregate deal value of US$11.2 billion. Investment in the United States was followed by investment in Latin America, Mexico, and the Caribbean (US$1.3 billion), Europe (US$500 million), and Asia (US$372 million). This activity remained proportionately consistent with previous years; however, as in 2018, 2019, also saw no investments by Canadian companies in Oceania and Africa.

Source: MergerMarket

The leading transactions by value for Canadian companies investing in the power sector in foreign jurisdictions in 2019 included the following:

Canada Pension Plan Investment Board agreed to acquire all of the shares of Pattern Energy Group Inc., a publicly listed US-based owner and operator of wind and solar facilities, for approximately US$6.1 billion.

Canada Pension Plan Investment Board acquired a 35% stake in Williams Ohio Valley Midstream LLC (“OVM”) and Utica East Ohio Midstream LLC (“UEO”) from Williams Companies, Inc. for US$1.3 billion. Both OVM and UEO are US-based companies; OVM is a distributor of natural gas and is engaged in the processing and fractionation of natural gas and natural gas liquids.

John Hancock Infrastructure Fund, GP and John Hancock Life Insurance Company, Inc. acquired a minority interest in a portion of a commercial renewable energy portfolio from Duke Energy Renewables for US$1.3 billion. John Hancock Infrastructure Fund, GP, is the Canada-based fund of Manulife Capital, the private equity arm of Manulife Financial Corporation. The acquired portion of the portfolio includes 49% of 37 operating wind, solar, and battery storage assets and 33% of 11 operating solar assets across the US.

ENMAX Corporation agreed to acquire Emera Maine, a US-based provider of electric delivery services to residential and business clients, from Emera Inc. for US$1.3 billion.

Ontario Power Generation Inc. acquired Cube Hydro Partners, LLC, a US-based operator of small and medium-sized hydropower facilities, from I Squared Capital for US$1.1 billion.

Northland Power Inc., a Canada-based electricity generation company, agreed to acquire a 99.2% stake in Empresa De Energia De Boyaca S.A. E.S.P., a Colombia-based generator and distributor of electricity, from Brookfield Infrastructure Partners Limited for US$795 million.

Click here to request a PDF copy of the publication: McCarthy Tétrault’s fifth edition of Canadian Power 

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